Cloud Transformation: What Boards Will Want to Know
Some 85 percent of US CEOs say that they are increasing investment in digital transformation for 2021, and for many companies, cloud computing is a key component of digital transformation. Indeed, nearly one-third of board members surveyed for a just-released PwC report confirmed that cloud computing is central to business strategy and critical to revenue growth.
Digital and cloud technologies are what it takes to compete in the market today. A strong business strategy, for many companies, will require a clear cloud strategy. An engaged board will want to ask the right questions about aligning those strategies. The four questions below can help guide the board’s discussions with management:
1. How will cloud computing enable our business strategy?
Input from the board is perhaps most needed when considering how cloud capabilities will support your business strategy.
A cloud transformation provides a generational opportunity to achieve a higher level of digital fitness. That will require robust discussions with management about the cloud strategy and overall investment.
The strategy should focus on enabling and improving those underlying capabilities that differentiate a company and can create enduring value. The PwC US Cloud Business Survey revealed that the top business outcomes from a cloud transformation desired by board and management respondents are improved decision-making with data analytics, stronger resiliency and agility, innovation of products and services, and better customer experiences.
Boards will want to know how their companies are using cloud to deliver on their short- and long-term business strategies. They will want to make time on their agendas to monitor their organizations’ cloud transformations, if significant, and get periodic updates from management, including progress toward key milestones.
2. What is the cost of using cloud, and how will our financial model be impacted going forward?
Use of cloud reduces or removes the need for companies to buy, own, and maintain physical information technology (IT) infrastructure, which can provide cost savings. For companies with cloud-compatible applications, cloud providers offer services on a pay-as-you-go pricing model, which adds agility and scales up and down automatically to meet businesses’ needs.
Moving to cloud means shifting technology spending from capital expenditure to operating expenditure. But it often begins with a capital expenditure that covers the costs of application modernization, if needed, including legacy app replacement to work with this new technology. The outlay for these items varies depending on a range of factors that may include how many legacy applications you use and the complexity of your IT environment. That said, companies too often simply migrate applications to cloud (that is, “lift and shift”) instead of taking the opportunity to first modernize their apps to support greater value creation.
Boards should understand management’s strategy to modernize certain applications and the expected return on investment, when the initial investment will break even, and whether there might be additional savings in future years.
3. How do we manage data security and privacy risks using cloud?
Similar to the adoption of other novel technologies, cloud creates new opportunities but also brings new risks. The risk boards and others most frequently think about is data security and privacy. While cloud-native applications will likely make a business more secure than if those services were performed on the premises, companies still need to have effective controls and processes in place to address data security.
Even so, our data shows that security, risk, and compliance are considered in the planning phase of cloud transformation only 17 percent of the time. For companies beginning to confront cloud transformation, involving experts on security, risk, and compliance early in the process can avoid greater risks and larger expenditures later, and boards will want to ask about their involvement.
4. What are the tech talent and upskilling implications of moving to cloud?
Boards will want to understand the strategy for ensuring that their businesses have sufficient talent to support cloud transformation and ongoing operations. The good news is that the survey revealed this issue is top of mind for management, with 57 percent of chief information officers reporting that they have upskilling programs in place to help develop the requisite skills.
There are two talent-related implications of moving to cloud. The first relates to the underlying talent in an organization and whether it is skilled and equipped to handle the new technology and business processes. Some questions directors might want to ask include:
What new skills are needed?
Will the company upskill existing talent or recruit outside talent—or both?
How does the increasing number of cloud applications change how the traditional IT function operates?
The second, and more significant, personnel-related implication relates to the expectation that companies will operate leaner in the future. Shareholders and other constituents will require growth without an increased workforce capacity, which will place even greater pressure on cloud-related investments to deliver a return.
Boards will want to make sure they understand the talent strategy around cloud.
Digital transformation via cloud can bring value to a company. A board that makes sure there is a focused strategy with defined value metrics and management of key risks, including talent needs, can help ensure success. Just remember: The cloud journey is never complete. It is not a destination, but a new way of doing business.
Maria C. Moats is a partner with PwC and the leader of PwC’s Governance Insights Center. Jenny Koehler is a partner and PwC’s cloud and digital leader.
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Maria C. Moats is a partner with PwC and the leader of PwC’s Governance Insights Center, which strives to strengthen the connection between directors, executive teams, and investors by helping them navigate the evolving governance landscape.
Jenny Koehler is a partner and PwC's cloud and digital leader.