When implementing enterprise-wide technology, leaders want to be sure that their investment will pay off – and rightly so, given the time, money and resources required to put implement new technology. Evidence of the value of cloud-based services is often anecdotal, based on the experience of a handful of companies that have published vendor-backed case studies.
A new research paper from Wang Jin, a research fellow with MIT’s Digital Economy Initiative, provides some of the first large-scale research on the impact of cloud adoption. The study found that moving to the cloud pays off, helping companies improve productivity, increase revenue, and lay the foundation for initiatives like artificial intelligence and workforce support. remote work.
“The cloud has a positive effect on business performance,” Jin said. “The effect is statistically significant and economically important, and it increases over time.”
Job postings mark start of cloud adoption
In a 2018 paper, Jin and his co-author found that cloud investments were associated with higher survival rates and growth numbers for small and medium-sized manufacturing companies.
According to a new study, companies generate $1.4 million in sales for every new hire with cloud skills.
Yet, assessing the impact of cloud adoption on business productivity has proven difficult due to the lack of large-scale empirical evidence. This is partly for practical reasons, as most companies do not count cloud investments as a single capital expenditure on their balance sheet. Because cloud services can be adopted on a case-by-case basis and considered a flexible cost.
Part of the reason is competitive, as companies often view migrating to the cloud as some kind of trade secret. This is especially true in the tech sector, Jin said. “You don’t want to mention who [cloud vendors] who you work with to develop a service. It is a high-level strategic decision that often brings a competitive advantage.
However, there is another way to determine whether companies are embracing the cloud: job postings. MIT economists Daron Acemoglu and David Autor demonstrated in a 2021 paper that the adoption of artificial intelligence impacts the skill requirements that companies have listed in job postings.
Jin used this research model, measuring enterprise cloud computing investment and adoption based on demand for general cloud skills (design and manufacturing) or product-specific skills (Salesforce Service Cloud or Amazon Simple Storage Service). It pulled data from jobs published by labor market analytics firm Burning Glass Technologies, which covered more than 200 million jobs published since 2007.
There are two advantages to this approach, Jin said. The first is that it indicates when companies really started to “adopt” the cloud. It is not when a formal announcement is made in SEC documentation which, even when it exists, is often a strategic decision made long after the actual adoption. Rather, it’s when the first job posting looking for cloud-related skills is posted, which involves a strategic commitment of cloud-related human capital investment. Along the same lines, he also asserts that a company’s cloud strategy is equal parts an investment in technology and a complementary skilled workforce.
“One of the biggest barriers to cloud adoption, especially in large enterprises, is the lack of cloud-related skills,” Jin said. This is supported by a report from Accenture.
Benefits of Cloud: Revenue Growth, Reduced Opex, AI Adoption
Jin found that revenue growth of public companies adopting cloud technology was 2.3% to 6.9% higher than that of non-adopters over the past decade, with the midpoint being when the company first posted their first job looking for cloud-related skills.
Additionally, estimating the business value of cloud computing, Jin concluded that hiring each worker with cloud-related skills generates approximately $1.4 million in sales.
Several factors could contribute to this growth. The cloud’s flexible deployment model gives companies the flexibility to start small, typically within a single business unit, and scale up or down as they see fit. This pay-as-you-go model stands in stark contrast to traditional on-premises software applications that take years of planning and still fail at alarming rates – up to 75% for enterprise resource planning, for example.
“With the cloud, you can start as an experiment, make sure you can make it work, and then roll it out across the organization,” Jin said. “And if something fails, you don’t lose the fixed costs of the IT infrastructure.”
Moving away from on-premises IT infrastructure also eliminates geographic restrictions on where companies base both technology assets and the employees who use them. This reduces operating expenses because offices for knowledge workers don’t need to be located in high-cost markets, and it expands the pool of job candidates with cloud skills.
Finally, the adoption of the cloud for many companies is serving as a starting point for artificial intelligence and machine learning initiatives. Jin said it’s important to note that cloud adoption and AI and machine learning adoption are interrelated. The cloud is often a base for AI, he added.
“If you want to run large-scale models, it’s natural to have to run them on the cloud given the demand for computing power,” Jin said.
Cloud Challenges: Organizational and Workflow Changes
Enterprises also face challenges with cloud adoption.
For starters, initial investments can be difficult to predict, Jin said. As the productivity J-curve suggests, there are “hidden intangible” costs associated with any technology deployment, and the cloud is no exception.
“You need manpower and skill to make it work better,” Jin said. “These additional investments take time. Some companies might even have short-term losses.
Moving to the cloud is also disrupting the traditional way of working. Even amid the recent shift to remote work, most organizational structures and technology use cases focus on in-person work using on-site computer systems. If these rigid business practices remain in place as a company adopts cloud-based services, the resulting misalignment can undo worker productivity gains and stifle growth, Jin said.
The utility industry provides a telling example. In traditional workflows, employees go out into the field to read meters and record the numbers in a notebook. When companies adopt cloud-based services, this work is done using a mobile app.
“These workers have been doing the same exercise for 30 years. There is a process of refinement that needs to happen,” Jin said. “You can buy the technology, but you need people to make it work. They must have cloud-related skills.
Long-term benefits for cloud users
Despite these challenges, Jin said cloud adoption has proven itself, especially during the pandemic.
In a separate article, Jin and his co-authors found that companies that had the technology to enable remote working before the pandemic fared better than their competitors in terms of higher sales, net income and stock market returns. . “If you need to enable employees to work remotely, you need the right infrastructure to do so — and the cloud is one of the fundamental infrastructure needs,” Jin said.
Unsurprisingly, cloud adoption has also accelerated during the pandemic. A Palo Alto Networks survey found a 25% increase in cloud usage in 2021.
For many of these new users, Jin said the initial benefits might be difficult to measure. These companies have not had time to make additional investments, while their cloud strategies have largely focused on maintaining operations.
Over time, however, the effect will be felt. “Companies that were better prepared performed better during the pandemic. This has important implications for market structures,” Jin said. “If you compare two companies, and one is cloud-ready and the other is not, the former will continue to perform better. This will likely have a lasting effect – and it could restructure the market. »
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