How can businesses make the best use of the cloud?

Technology Eye | Feb. 29, 2016

The IT industry is undergoing a technology and data revolution. Technology is accelerating the pace of change, creating new pathways for managing the customer experience and delivering services—and generating new business models. More than 50% of consumer touchpoints are now via online, mobile, or social media channels. These changes have already become embedded in consumer behavior, and many companies are struggling to keep up.

Agility has become a major challenge as CEOs struggle to modernize their businesses—particularly as disruptive competitors appear seemingly in the blink of an eye. BCG research shows that companies die sooner than ever before: one in three public companies overall and one in six large companies will not survive the next five years. (See “ Die Another Day: What Leaders Can Do About the Shrinking Life Expectancy of Corporations ,” BCG article, July 2015.)

To anticipate these disruptions and stay ahead of the curve, companies are investing in data analytics, digital, and security technologies. The cloud has become a critical part of this transformation. But one of the major delivery vehicles of the cloud—the network—is often merely an afterthought, if it’s given any thought at all.

To better understand this weakness in the technology landscape, BCG conducted a study (commissioned by EarthLink) on the future direction of the network industry. We found that network as a service (NaaS) represents a compelling value proposition. Not just a pay-as-you-go utility, NaaS offers a more intelligent, flexible, and secure infrastructure. It can help businesses improve their efficiency and performance in the cloud—and holds the potential to dramatically disrupt the network services industry.

The Cloud Is Here and It’s Transformational

The cloud unlocks a vast software as a service (SaaS) ecosystem offering best-of-breed business capabilities at the click of a button. In a BCG survey of 750 CIOs of medium-size companies in the US, 65% said they expect to move workloads to a public or private cloud by 2017.

Companies get a big bang for their buck in the cloud. For a typical retailer, the cloud drives dramatically lower spending on a like-for-like basis. Exhibit 1 shows how a medium-size retailer could reduce baseline IT costs by 47% after replicating its existing IT stack in the cloud, thereby freeing up funds that can be reinvested in the business.

Companies are looking to the cloud to handle their new and changing business workloads. Retailers are looking to compete with online-only retailers by providing low-cost, agile, and secure point-of-sale systems, innovative loyalty programs, and optimized supply chain processes, while also unlocking new business opportunities through customer data mining and targeting. Health care providers are grappling with a continuously changing regulatory environment and a growing need to make electronic health records available throughout the hospital and across practitioner devices while ensuring patient confidentiality. (See the sidebar, “The Crucial Importance of the Network for Health Care Providers.”) Educational institutions need to deliver rich online course materials, on demand, on any device, both on and off campus.

Enterprises are looking to shift existing workloads to the cloud and enable new workloads with a cloud-centric infrastructure. This will drive productivity improvements and support new and more flexible business models. As a result, IT infrastructure is evolving to meet these needs—moving from a largely siloed set of “stacks” to a much more flexible “as a service” model.

In response to such high demand, the cloud industry is growing quickly, with 3,200 SaaS companies and hundreds of infrastructure as a service and platform as a service companies receiving venture capital funding since 2010. NaaS is still nascent, however, with fewer than 15 companies competing in the space.

The Cloud’s Achilles’ Heel

The cloud (both public and private) can make us work smarter, faster, and cheaper, but many companies aren’t getting all they should from their investment—because the cloud has an Achilles’ heel. It can only perform as well as its weakest link. For most businesses, that’s the network, and a poorly optimized, static network can actually destroy value.

The network can become a bottleneck. Applications can run much slower than they should. Connecting a new network in order to launch a pop-up store, for example, may take weeks or months. Security can be compromised. Bursts of heavy traffic can lead to network crashes. The customer experience can suffer, leading to customer churn. In our survey, only 6% of retail companies were satisfied with the adaptability of their network infrastructure.

Furthermore, the traditional IT stack is becoming fragmented as new applications are born in the cloud but complex legacy applications remain on private infrastructure. This fragmentation raises barriers to the seamless flow of information and security risks as the IT department scrambles to secure a multitude of databases being accessed by myriad devices operating within and outside corporate offices.

Despite these large-scale changes in the IT landscape, networks seem to be frozen in time. While the speed and efficiency of the cloud technology stack is accelerating, networks are still a “fat pipe” delivering connectivity with basic service levels. Moreover, the network is still delivered on 30-, 60-, or even 90-day delivery times. One bank executive we spoke to said his company was forced to postpone a branch opening because of delays installing the network—at a cost of millions per day.

It doesn’t have to be this way.

NaaS: Faster, Better, Smarter Connectivity

When the network is overburdened, the cloud will not perform to its potential. Keeping the network running smoothly becomes extremely challenging once IT infrastructure is distributed across multiple, potentially fragmented cloud-based vendors. But a new solution is emerging, and it’s the most interesting thing that’s happened in networking in a long time. (See Exhibit 2.)

The network of the future delivers real value in the cloud world, helping companies operate more intelligently, seamlessly, and efficiently. NaaS represents not just an incremental change. It represents a sea change. It offers a new commercial model that will provide flexibility, service guarantees, and efficient pay-per-use pricing. Applications will scale up or down on demand. New networks will be deployed in minutes rather than days or weeks. Consumers will have a seamless experience. Privacy and security will be guaranteed. NaaS offers the following specific advantages:

CEOs and technology decision makers need to reevaluate their networks. They are making a substantial investment in the cloud, but even best-in-class cloud services can be brought to their knees by problems in the network. The cloud represents a huge change, and over 60% of the companies we surveyed are looking for help to reduce the risks involved in the transition.

NaaS Unlocks the Full Value of the Cloud

Companies need to take a good look at the overall maturity of their IT cloud and the changes needed across their IT environment to unlock the cloud’s full potential. This journey will evolve through four stages:

1. Adopt: the IT team struggles to meet business demands.

2. Advance: the IT team supports best practices in SaaS adoption.

3. Aspire: the IT team achieves a scalable cloud infrastructure.

4. Excel: the IT team provides full cloud-enabled, self-service IT.

The cloud cannot reach its full potential if the network doesn’t keep up. Successfully transitioning to the optimized, secure cloud means upgrading your network. Without addressing the network, companies will face data bottlenecks and delays, in addition to security risks and inefficiency from an increasingly fragmented and complex IT environment. With a comprehensive strategy in place, companies can rapidly develop their IT and reap the full potential from emerging business opportunities.

Joseph F Eazor & Guy Gilliland

SOURCE: World Economic Forum

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