Methods and Practices: Cloud in Retail

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1 Methods and Practices: Cloud in Retail IDC Retail Insights: Retail IT Infrastructure Strategies METHODS AND PRACTICES #RI Kimberly Knickle Leslie Hand Global Headquarters: 5 Speen Street Framingham, MA USA P F IDC RETAIL INSIGHTS OPINION This IDC Retail Insights report examines the results of IDC's 2013 Global Technology and Industry Research Organization IT Survey and how it relates to retailers in particular. We also provide retailers with information they can use to decide how they can adopt cloud computing. Key findings include: Cloud adoption continues to be low among retailers when compared with other industries. Retailers' long-term expectations for cloud show that 66.2% of retailers will limit their use of cloud to private clouds, a very small amount of cloud, or no cloud computing whatsoever over the next five years. Hardware cost savings at 34.7% is the number 1 driver for retailers adopting private clouds, while software cost savings at 35.6% is the number 1 driver for retailers adopting public cloud. According to 44.4% of retail respondents, the form of security that would be required to adopt cloud computing is through the financial indemnification for all costs associated with breaches. Despite the low levels of adoption in retail, we do see opportunities for cloud computing to lower overall IT costs and deliver more ITbased services to the business. However, this will take time to gain hold in the retail industry. Retailers articulate more interest in cloud than their commitments indicate. They increasingly understand the value but are waiting for more demonstrated success before they invest. September 2013, IDC Retail Insights #RI IDC Retail Insights: Retail IT Infrastructure Strategies: Methods and Practices

2 TABLE OF CONTENTS P In This Study 1 Situation Overview 1 Method Specifics 3 Future Outlook 4 Essential Guidance 7 Actions to Consider... 7 Learn More 9 Related Research... 9 #RI IDC Retail Insights

3 LIST OF TABLES 1 Categories of Cloud IT Services Security Provisions Required to Adopt Cloud Computing... 6 P 2013 IDC Retail Insights #RI243398

4 LIST OF FIGURES P 1 Top Reasons for Using Private Cloud in Retail Top Reasons for Using Public Cloud in Retail Long-Term Expectations for Cloud Services over the Next Five Years Advancement of Firms in Cloud Maturity Model... 7 #RI IDC Retail Insights

5 IN THIS STUDY This IDC Retail Insights report examines retailers' views on cloud computing based on responses from IDC's 2013 Global Technology and Industry Research Organization IT Survey. We also highlight best practices in cloud computing and the opportunities for retailers as cloud adoption matures. SITUATION OVERVIEW Cloud is changing how retailers evaluate, procure, and deploy IT assets. The financial advantages of cloud primarily the ability to move capital to operating expenses may initially drive cloud adoption for many retailers, but the ability to enable continual customer-centric innovation and the creation of new products and services with cloud computing are what could make cloud a critical feature of business transformation for retailers. Organizations will prepare to move to the cloud by virtualizing and rationalizing applications and infrastructure, but they will stay there as a result of the unique business advantages and opportunity associated with innovation in the cloud. Retailers should look at three distinct advantages to the cloud: IT efficiency: With IT resources delivered quickly and efficiently when and where the business needs them, at an acceptable price point IT agility: With IT resources available in easily consumable, consistent, and standardized services Business innovation: With IT resources enabling the business to address customer opportunities and optimize business performance, with business agility Today, the majority of business cases for cloud are related to IT efficiency lowering IT costs. In Figures 1 and 2, we see that cost savings are the top reasons for using private cloud and public cloud. This includes hardware cost savings, software cost savings, and lower external maintenance costs IDC Retail Insights #RI Page 1

6 FIGURE 1 Top Reasons for Using Private Cloud in Retail Q. If using private cloud, which of the following are your top 3 reasons for using private cloud? n = 125 Source: IDC's Global Technology and Industry Research Organization IT Survey, 2013 FIGURE 2 Top Reasons for Using Public Cloud in Retail Q. If using public cloud, which of the following are your top 3 reasons for using public cloud? n = 115 Source: IDC's Global Technology and Industry Research Organization IT Survey, 2013 Page 2 #RI IDC Retail Insights

7 METHOD SPECIFICS This report includes survey research as well as more anecdotal research gathered from retail and other industries. Our definition of cloud services is across the range presented in Table 1. TABLE 1 Categories of Cloud IT Services Category Application software (software as a service SaaS) Application platforms (platforms as a service PaaS) Infrastructure (infrastructure as a service IaaS) Description Encompasses functionality enabled by packaged, open source, and custom application software including SaaS-based application software offerings. Examples include collaborative apps, content apps, CRM, ERM, SCM, operations and manufacturing apps, and engineering apps. Encompasses functionality enabled by application development, testing, database, analytics, and middleware. Encompasses functionality enabled by physical and virtual systems, storage, and network hardware. Source: IDC Retail Insights, 2013 Note: Although we've described platform, infrastructure, and software as three clearly delineated categories, many cloud-based offerings will span multiple technology categories. For example, virtual private cloud services delivered via third-party cloud service providers may combine infrastructure hardware with remote SaaS management and development capabilities all for a single monthly fee. As we've spoken with companies that have successfully adopted cloud, we have identified the following best practices: Enable collaboration. Cloud computing enables collaboration via ubiquity and mobility; they are not limited to their footprint and are inclusive. Cloud collaboration thrives in places where collaboration was manual and difficult to access with traditional IT options. Leverage mobile technology. While mobile technology can exist without cloud, the two clearly bring additional value when they are used together. Virtualized and online cloud offerings are tailormade for distribution to mobile devices like laptops, tablets, and smartphones IDC Retail Insights #RI Page 3

8 Optimize cost benefits. Successful cloud implementations optimize costs using multiple approaches. Cloud computing may offer delivery with a more attractive cost structure and comparable or lower ongoing costs when compared with traditional applications. In addition, innovative cloud applications, such as the examples provided herein, provide options unique to the cloud while still offering highly competitive cost models when compared with forgoing functionality or acquiring traditional offerings that may accomplish the task but meet business needs incompletely, piecemeal or without integration. Fast time to market. From a retail perspective, cloud could provide a "retail IT department in a box" with implementations in the cloud configured and delivered quickly to take advantage of resources. Advantage applies to initial implementation but also to the application of new product releases and modifications. Reports from retail early adopters of cloud capabilities applaud the efficiency and value of the "expert" advice, execution, and support attained through such arrangements. Integration. The cloud offers unique opportunities for integration, particularly when platform as a service and infrastructure as a service are used. Application-independent data can be maintained in the cloud and distributed to multiple products and services via platform-as-a-service options. Competitive advantage. Innovators describe their ability to leverage cloud technology in their implementations to create competitive advantage in specific uses cases and business scenarios, and do so in a manner that is specific to cloud. In short, they have created opportunities that could not exist outside the cloud with the same efficiency, agility, and cost benefit as they do within the cloud. By doing so, they create advantages for end users. FUTURE OUTLOOK Retailers indicate that they will be conservative in adopting cloud computing over the next five years. More than half of retailers currently expect to limit their use of cloud to private clouds, a very small amount of cloud, or no cloud computing whatsoever over the next five years (see Figure 3). Page 4 #RI IDC Retail Insights

9 FIGURE 3 Long- Term Expectations for Cloud Services 0ver the Next Five Years Q. Which of the following best describes your long-term expectations for cloud services at your organization over the next five years? Source: IDC's Global Technology and Industry Research Organization IT Survey, 2013 However, we do believe the financial advantages of cloud primarily the ability to move capital to operating expenses will likely drive initial cloud adoption for many retailers. Long term, the ability to enable continual customer-centric innovation will take precedence and retailers will view cloud as a critical enabler of business transformation. Retailers will increasingly understand the value of cloud computing and increase their investments as they see more examples of success. Given that security and data privacy are the two most often referenced stumbling blocks to adopting cloud computing, we asked retailers what type of security provided by the IT supplier would encourage their adoption. Almost half of retailers associated the security risks with the financial risk to their business 44.4% selected financial indemnification (see Table 2). To some extent, the results shine a light on something we already know that retailers place an extremely high value on their reputation and how they are perceived by customers. But we also believe that retailers can benefit from cloud computing, in the market and financially IDC Retail Insights #RI Page 5

10 TABLE 2 Security Provisions Required to Adopt Cloud Computing Q. What security provisions would be required for you to consider moving more of your infrastructure and applications into the cloud? % of Respondents Financial indemnification for all costs associated with breaches including follow-on legal actions by victims 44.4 Public responsibility for all breaches will issue press release attesting to responsibility 36.7 Employs data encryption to NIST standards during storage and while in transit to and from the cloud datacenter 32.2 Customized SLA or other security provisions for my industry 28.6 Financial indemnification for direct costs associated with breaches regulatory penalties, fines, and required actions 28.5 Agrees to participate in independent security audit 28.1 Provides breach monitoring and detection services 38.9 n = 218 Source: IDC's Global Technology and Industry Research Organization IT Survey, 2013 The opportunities to leverage the cloud for business transformation will continue to expand. In combination with mobile, social, and analytics technologies, cloud platforms will continue to add agility, efficiency, and cost savings to projects while enabling options that are not otherwise viable. As cloud technology is fully explored and confidence in business benefits and security is increasingly proven, continued growth in the number and nature of use cases for industry can be expected. Figure 4 illustrates the cloud maturity model alongside the percentage of firms across all industries that are estimated to be working with the cloud at the corresponding state of maturity. As illustrated in Figure 4, IDC estimates that 70% of all firms are operating in the ad hoc and opportunistic stages of cloud investment, while the five examples in our case studies represent efforts at the less-common managed and optimized levels where benefits from cloud begin to accrue rapidly. Page 6 #RI IDC Retail Insights

11 FIGURE 4 Advancement of Firms in Cloud Maturity Model Note: Percentage refers to the portion of U.S. organizations with >100 users in all industries. Source: IDC, 2013 ESSENTIAL GUIDANCE Actions to Consider Start slow and pick the right first cloud projects. Organizations just getting started with the cloud should look to IDC's Cloud Maturity Model for initial approaches, and should generally start by virtualizing infrastructure and existing applications to drive learning about cloud in the organization, then move on to more complex cloud-based business applications: Now: Assess the current cloud and service-oriented skill sets across the business and in IT, engage with peers and vendors, and inventory ongoing pilots and projects IDC Retail Insights #RI Page 7

12 Next budget cycle and over the next one to two years: Build skills and knowledge in cloud and cloud service management and use early wins to demonstrate potential and justify budget allocations. Identify cloud champions that not only promote cloud in the business (with measured performance reports) but also gather feedback on the transition and build a bridge between IT and business, expand projects, define architectural standards and risk requirements, review vendors, and budget for cloud investments. Midterm refresh in three to five years: Review your progress to date. Report on the business and technical successes as well as areas needing improvement, ensure that your IT staff and vendors are satisfying the requirements of a service-oriented IT delivery model (or find new ones), and update your architectural assumptions to sync with technology advances. Don't get bogged down in creating enterprise cloud strategy or a road map at the outset. It's "OK" to just get started with a few key projects that drive immediate business benefits and have low initial investments that mitigate risk. Once these ventures prove successful, the investment should be made to build a road map for cloud strategy/architecture that has wide-reaching business benefits and incorporates complementary technologies like social, mobile, and analytics. Create new capabilities that don't simply reduce cost. Initially, it will be important to focus on the economic benefits of cloud, but in the long term, industries will need to focus on innovation. As many organizations have found with cloud services, the initial cost of simply moving existing applications and infrastructure to the cloud is attractive, but long term, cost can be higher unless additional business benefits accrue from innovation in the cloud. Select candidate business processes or cloud services from those that currently are not fully automated or were not candidates for automation with conventional applications, as these have the most potential to benefit from cloud. The best candidates with the highest benefit will be those that combine multiple technologies like mobile, social, and analytics in the cloud. Consider cloud options when updating and replacing business applications. In industry end-user organizations, replacement cycles for applications tend to be long, so replacement technology decisions should be carefully considered. Replacements represent an opportunity to update the infrastructure behind the applications and choose intelligent industry offerings that incorporate delivery via the cloud, as well as mobile, social, and analytics tools that will drive additional productivity and business benefits, while making support and maintenance less costly and cumbersome for IT. Page 8 #RI IDC Retail Insights

13 Consider cloud options for replacing infrastructure. Outdated technology infrastructure can be difficult and expensive to maintain and can use onsite resources or space that are best directed toward core business needs. Cloud-based infrastructure and infrastructure as a service can allow more agile provisioning of IT resources and growth while freeing up space in facilities and datacenters for revenue-generating activities. Choosing cloudbased infrastructure can also help stretch resources and make support and maintenance less onerous for IT, moving focus to core business support. Organizations in the optimized stage may explore opportunities to externalize their specialized IP and services, further perpetuating business transformation in the industry. LEARN MORE Related Research U.S. SMB Vertical Market Profiles: Attitudes, Opportunities, Cloud Engagement, and Online Promotion in 15 Industries (IDC #243298, September 2013) Perspective: Three Hurdles to Cross Along the Long Road to Becoming an Omnichannel Retailer (IDC Retail Insights #GRI241519, June 2013) IDC Maturity Model: Enterprise Mobility A Guide for Success (IDC #240968, May 2013) Presentation: Convergence of Digital and Physical Dynamics in an Omnichannel World (IDC Retail Insights #GRI241206, May 2013) Worldwide Retail Industry 2013 Top 10 Predictions (IDC Retail Insights #GRI238956, January 2013) Synopsis This IDC Retail Insights report examines retailers' views on cloud computing based on responses from IDC's 2013 Global Technology and Industry Research Organization IT Survey. Cloud is changing how retailers evaluate, procure, and deploy IT assets. While current cloud adoption in retail trails that in many other industries, the financial advantages of cloud primarily the ability to move capital to operating expenses will likely drive initial cloud adoption for many retailers. Long term, however, the ability to enable continual customercentric innovation will take precedence and will make cloud a critical enabler of business transformation for retailers IDC Retail Insights #RI Page 9

14 Leslie Hand, research director, Omni-Channel Operations Strategies for IDC Retail Insights, states, "Retailers are making significant transformative technology investments now and should seriously consider cloud deployment options where the stakes are high and continual change is inevitable." Copyright Notice Copyright 2013 IDC Retail Insights. Reproduction without written permission is completely forbidden. External Publication of IDC Retail Insights Information and Data: Any IDC Retail Insights information that is to be used in advertising, press releases, or promotional materials requires prior written approval from the appropriate IDC Retail Insights Vice President. A draft of the proposed document should accompany any such request. IDC Retail Insights reserves the right to deny approval of external usage for any reason. Page 10 #RI IDC Retail Insights

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