The TCS Cloud Study

Demographics and Research Process066

001I. Executive Summary

Executive SummaryIn the fall of 2011, Tata Consultancy Services (TCS) conducted an extensive study on how600+ primarily large companies (most with more than $1 billion in revenue) were usingapplications in “the cloud” – software residing on remote data centers that organizationsaccess via the Internet. Such data centers can be run by third parties that co-locateapplications of multiple companies (so-called public clouds). Or these data centers can berun for the sole use of one organization, operated by that organization itself (privateclouds).Public cloud computing vendors provide shared computing resources (hardware andsoftware) to companies that don’t want to incur the cost of such IT infrastructure. A cloudvendor’s offerings typically provide computing resources on demand, automated systemdeployment and scaling, and pay-per-usage pricing. There are three primary benefits ofcloud services: computing resources on-demand (which saves companies from having toplan ahead for securing such resources); the elimination of upfront commitments to IT(and thus avoid purchasing new hardware, software or whole data centers for computingdemand that may be uncertain in the future); and pay-per-usage pricing (e.g., processorsby the hour), which reduces the amount of computing resources that are sitting idle.TCS believed that while numerous studies have been published on cloud computing since2008, none had deeply explored how business functions such as marketing, sales, R&D,distribution, manufacturing, operations, finance and others were using cloud applications(also known as “software as a service,” or SaaS).We designed the study to explore five core issues:The factors that are driving companies to put theirapplications software in the cloud – whether those cloudapplications were shifted from computers on-premises orwere entirely new applications that had no on-premisespredecessorsWhich cloud applications have been adopted by whatbusiness functions and whyThe benefits they had generated to date from shifting onpremisesapps to the cloud and from launching entirelynew apps in the cloudThe success factors to generating buy-in, adoption andbenefitsTheir future plans for cloud apps – specifically, what typesof cloud apps their business functions planned to have by2014We conducted several research streams.The first was quantitative research: anonline survey of 600+ companies fromfour regions of the world. The survey wasextensive and polled the experiences ofboth senior business functionalmanagers and corporate IT executives.The second stream of research wasin-depth interviews with six companieson their attitudes and experiences withcloud applications. Their stories shedfurther light on what’s drivingcompanies to shif t existingapplications or put new applications inthe cloud, the benefits and competitiveadvantages those applications aregenerating, and the challenges togetting the organization to adopt cloudapplications (both those in public andprivate clouds). These companies were:003

Executive SummaryFinding No. 3: The early returns on cloud applications are impressive. Companies usingcloud applications are increasing the number of standard applications and businessprocesses, reducing cycle times to ramp up IT resources, cutting IT costs, and launchinga greater number of new products and processes. The story of a major telco shows theambitions of the some of the most aggressive cloud adopters. (See Page 15.)Finding No. 4: Customer-facing business functions are garnering the largest share of thecloud application budget. Marketing, sales and service are capturing at least 40% of thatbudget in all four regions. The experiences of Dell’s enterprise sector online marketingfunction shows how one large company is trying to get closer to customers through cloudmarketing applications. And a new private cloud at Web media company AOL Inc.explains how a technology-dependent company can make its technology moreresponsive and cost-effective. (See Page 28.)Finding No. 5: Many companies are reluctant to put applications with sensitive data in thecloud. In the U.S. and Europe, the applications least frequently shifted from on-premisescomputers to the cloud were those that compiled data on employees (e.g., payroll), legalissues (legal management systems), product (pricing and product testing), and certaincustomer information (e.g., customer loyalty and e-commerce transactions). Still, somecompanies had shifted applications with customer data to the cloud, especially incustomer service, and many planned to shift a number of customer-related applicationsto the cloud by 2014. (See Page 32.)Finding No. 6: The heaviest users of cloud applications are the companies thatmanufacture the technology hardware that enables cloud computing(computers/electronics/telecom equipment), while healthcare services providers arethe lightest users (in terms of average number cloud apps per business function).(See Page 44.)Finding No. 7: The most aggressive adopters of cloud applications are companies in Asia-Pacific and Latin America. They report having much higher percentages of cloud appsto total apps – and bigger results from cloud apps than their peers in the U.S. and Europe.(See Page 54.) We show how a large consumer products company uses the cloud torespond rapidly and effectively to consumer issues around the world.Finding No. 8: Despite a significant shift to cloud applications, most companies(especially in Europe) remain conservative about which applications they put in publicclouds. Less than 20% of U.S. and European companies would consider or seriouslyconsider putting their most critical applications in public clouds. But 66% of U.S. and48% of European companies would consider putting core applications in private clouds.(See Page 58.)Finding No. 9: The keys to adopting and benefiting from cloud applications areovercoming fear of security risks and skepticism about ROI. (See Page 62.)Finding No. 10: Companies evaluate cloud vendors most on their security andreliability/uptime capabilities – and far less on their price. This was the case in all fourregions. In fact, price typically finished at the bottom of a list of nine factors in making thecloud application purchasing decision. (See Page 68.)In the following pages, we dive deeply into these and other statistics and stories.005

II.The State of Adoptionof Cloud Applications005

The State of Adoption of Cloud ApplicationsDespite all the press and technology research firm coverage of cloud computing in the lastfew years (especially in 2011), software applications that are hosted in public or privateclouds still represent only a minority of total applications software for large companies.The clear majority of applications in 2011 – 81% in the U.S. companies and 88%in European companies – were resident on computers located on their premises.To a lesser extent, this was also the case in the Asia-Pacific and Latin American companiesthat we surveyed. In Asia-Pacific, on-premises applications were 72% of all applicationsin 2011, while 28% were based in the cloud. In Latin America, 61% of all corporateapplications software were on-premises vs. 39% that were in the cloud.However, the companies we surveyed expected these percentages to changesignificantly by 2014. American companies projected cloud applications to increase from19% of all applications (cloud + on-premises) to 34% by then. The European companiessurveyed expected that cloud applications as a percent of total applications woulddouble, from 12% in 2011 to 24% by 2014.In Asia-Pacific and Latin America, cloud applications are expected to be at least half of totalcorporate applications by 2014 – 50% for Asia-Pacific companies and 56% for LatinAmerican firms.Exhibit II-1Cloud Applications as % of Total CorporateApplications -- 2011 and 2014 (Projected)United States19%34%Europe12%24%Asia-Pacific28%50%Latin America39%56%0% 10% 20% 30% 40% 50% 60%2011: # of Cloud Apps as % of Total Apps (Average Per Company)2014: # of Cloud Apps as % of Total Apps (Projected) (Average Per Company)007

MICROTOOLS in shopsA lighting solution with convincing benefitsThe product has complete attentionThe miniaturised LED lighting system promotes the dialoguebetween customers and the products on offer by placing goodscentre stage and by efficiently presenting attractive details.The combination of almost invisibly integrated yet gimbal-mountedluminaires gives new perspectives to planners, shop operators andshop fitters. The goods themselves become attractive eye-catchersthanks to the flexibly alignable luminaires, so that shoppers aretempted to stay and browse. The energetic benefit compared toconventional systems with low voltage halogen lamps is that consumptionis reduced significantly.Save energy and protect resources with a durable solutionEnergy consumption is considerably reduced if light is emitted notfrom the ceiling but directly from within the shelves. A furtheradvantage gained by the short distance is that despite less effortthe presentation becomes more exciting. Because the LEDsdissipate only low quantities of heat in the direction of illumination,goods are protected from unintended damage and prematureageing. The long service life is a major benefit for the sustainabilityof the lighting solution; a MICROTOOLS lighting head has a servicelife of 50,000 hours or more, meaning that in retail practice relampingis no longer required.

The State of Adoption of Cloud ApplicationsIn each region, we looked at cloud apps as a percent of total apps by company size and sawsome interesting patterns. One was that in American companies the “mid-sized” largefirms ($1 billion to $10 billion in revenue) were the heaviest users of cloud applications. Inthese companies, cloud applications represented 27% - 28% of total applications. And by2014, U.S. companies with revenue of between $1B-$5B said they expected cloudapplications to be 52% of all applications – more than twice the percentage (23%)expected by companies of more than $50B in revenue. (See Exhibit II-3.)Exhibit II-3U.S.: Number of cloud applications asa % of all applications20112014All companies (>$500M)Companies $500M-$1BCompanies $1B-$5BCompanies $5B-$10BCompanies $10B-$20BCompanies $20B-$50BCompanies > $50B19%16%27%28%17%17%14%34%44%52%31%35%30%23%009

Notes on lighting qualityWhen erroneous colouration or heat cause damage ...Binning – constant colour locationsfor high quality illuminationWhen LED chips are manufactured, LEDs from different productionbatches have variable properties. This may affect luminousflux, the colour location or forward voltage. The importance ofsuch criteria varies according to the application and product.With white LEDs the binning process is especially important, andselecting a specific binning group ensures that the colour locationof LED light remains constant. This in turn ensures a uniformappearance for all LED luminaires equipped within the definedbinning range. The more precisely this range is limited, the lowerare the visible fluctuations.For this product assortment Zumtobel guarantees1/16 binning (approximately corresponding to a 2-stepMacAdam ellipse, see the diagram below) and therefore auniform appearance for all LED modules: colour stability isguaranteed over the complete service life (50,000 hours).CCy0.460.452700 K0.443000 K0.433500 K0.424000 K0.410.404500 K0.395000 K0.380.370.360.350.340.330.33 0.34 0.35 0.36 0.37 0.38 0.39 0.40 0.41 0.42 0.43 0.44 0.45 0.46 0.47 0.48 0.49CCxThe precise selection of LED chips (1/16 binning, coloured sections)guarantees very high colour stability.

The State of Adoption of Cloud ApplicationsCloud Adoption: Reaching Critical MassThe numbers showing future cloud usage by 2014 are striking – ranging from one-quarterof all corporate applications being in the cloud in Europe, to one-third in U.S. companies toabout half in Asia-Pacific and Latin American companies. Yet even though these numbersare projections of future adoption trends, we nonetheless believe that large corporationshave passed the inflection point, or critical mass, in adopting cloud applications – at thevery least, in private clouds that a company owns (or are run for them by a third party).Our study of a large telco illustrates this point. Today, about 30% of its applications arecloud-based (mostly private cloud-based systems that it runs in its own data centers). Inthe last two years, the company has moved all its financial systems for its general ledger,payables and fixed assets to the cloud. At the end of 2011, it was moving all HRapplications to the cloud, standardizing on SAP and other enterprise applications.However, by the end of this year the company expects 80% of its applications to be in itsprivate clouds. The company has also launched many new cloud applications that had noon-premises predecessors. A good number of these were cloud-based financialapplications – specifically, general ledger and fixed asset applications that are helping thecompany track its sizable capital investments in both its wire-line and wireless networks.The telecommunications services company’s aggressive of adoption of cloud computingwas far from unusual, even outside the U.S. Consider the Commonwealth Bank ofAustralia. The bank began shifting applications to the cloud in 2008. Today, the bank hasdozens of cloud applications serving its sales, customer service, HR, operations and ITfunctions. And the bank continues to identify which of its more than 3,500 applicationsthat it has amassed over the last 30 years can (and can’t) be shifted to the cloud.The objective, however, is to put as many applications into the cloud as possible, saidDilan Rajasingham, executive advisor to the bank’s chief information officer. (See case011

Commonwealth Bank of Australia: Using the Cloud toFund a Wave of Innovative Financial ServicesFounded exactly 100 years ago and headquartered today in Australia’s largest city(Sydney), Commonwealth Bank of Australia is the country’s largest bank, withrevenue of US $35 billion. Naturally, as a large financial institution, the bank has ahealthy appetite for IT, spending nearly $1 billion on it annually. It has more than3,500 software applications, amassed over 30 years.That’s where cloud computing comes in: Given the bank’s penchant forintroducing a steady stream of innovative technology-based services to its retailand other customers, it must find ways to economize on IT. Four years ago, thebank launched what it refers to as a core banking modernization program for itsvast number of information systems. It has also been identifying applications thatshould go in public clouds, a private cloud or a hybrid of the two.By shifting dozens of on-premises applications to the cloud starting four yearsago, the bank has reduced operational costs. This has freed up money that thebank has reallocated into delivering new services. “We want to get out ofinfrastructure computing and into fine-grain components and highly granulardata so that our customers enjoy new services,” the bank’s chief informationofficer, Michael Harte, explained to CIO magazine.To reduce costs, CBA has created “As a Service”/ cloud offerings in sales, customerservice, HR, operations and IT applications and environments over the last fouryears, says Dilan Rajasingham, executive adviser to the CIO. Some of these are coreenterprise systems – e.g., payments and talent management, while others arepilots and proof of concepts such as “Big Data,” and others still are supportenvironments such as development and testing.How can moving to “As a Service” and cloud reduce IT costs at CBA? A primeexample is the bank’s “as a service” payment hub. By developing a single paymentsolution once to be used across the bank, from front office to back office, and withstandard interfaces, CBA has achieved significant savings in system integrationand development costs and time. Components of the solution’s modulararchitecture, such as SWIFT (for international money transfers), have also beenextended to CBA group entities across Australia and Asia.The bank has also become a provider of cloud services to its customers.For example:It has collaborated with pharmaceutical, manufacturing, and distributioncompanies – and even other banks -- in the creation and provision of cloudbaseddatabases “as a service.”Itprovides cloud infrastructure services running on CBA servers (as well as thecapability to run on Amazon’s cloud servers). With these services, CBA developsand tests new computing applications used internally and externally. Hartetold CIO magazine that the bank can launch new cloud computing services inless than 10 minutes and at as little as one-tenth the cost of testing anddeveloping applications in the past.012

The State of Adoption of Cloud ApplicationsSo how do you add up the benefits? Rajasingham categorizes them in threeways:Cost reduction. For example, “as a service” storage has cut CBA’s cost ofcomputing storage by around 40%. Even more impressively, the “as a service”overdraft offering has reduced processing time of standard overdrafts by 90%.Harte told the Australian Financial Review that CBA was “saving tens of millionsof dollars and [potentially] hundreds of millions [over the next three or fouryears] from buying services on demand, paying a unit price for them andhaving the flexibility.”Faster development of computer systems. The bank refers to this benefit asone of “agility.” The bank’s payment system – which combines a stack oftechnologies necessary to offer payment services (the application, itsunderlying middleware, operating system and other infrastructure, and theserver and storage hardware) – is a case in point. No longer does the bank needto build a new payment system every time a business unit or department asksfor one.Mindset shifts from getting business units to share IT applications. CBA’sHR function has adopted so-called talent management applications to betterunderstand trends in turnover, recruitment, hiring patterns and future hiringneeds, absenteeism and other areas. CBA has created a cloud-based talentmanagement application that any of its banking units – e.g., Bankwest (a 2008acquisition) and ASB (its New Zealand bank) – could adopt. This has reducedcosts dramatically.Harte has talked publicly about how the IT infrastructure cost savings from cloudcomputing is freeing up time and money for CBA to focus on providing newbanking services (much of it online) that let customers do such things as get offerson financial products in real time. This is because more bank people can now focuson evaluating customers’ individual needs and pricing products and servicesbased on their risk profile and loyalty. Cloud computing, he said, will let CBA shiftfrom spending “half of our budget on maintaining lights-on [IT] infrastructure, andget more of that money into creating really high-value, highly responsive services.”He sees cloud computing as enabling banks like CBA to invest less in the backendIT infrastructure and more in online banking services that customers have come todemand – applications to bank from their mobile phones, tablet computers andother digital devices.Shifting technology spending from backroom to front office applications isnecessary because banks are no longer competing just against other banks inexploding areas such as mobile payments, CBA’s CEO Ralph Norris said in a 2011presentation to investors. “Our business is not going to be about competingagainst banks or other current payment players; it’s against phone companies,providers of technology themselves, and the new social media entities,” saidNorris. “You have to bring to bear new features and functions that are goingto resonate with customers using those sorts of facilities.”013

III.Why Companies areUsing Cloud Applications

Why Companies are Using Cloud ApplicationsWe asked companies to rate on a scale of importance (1 to 5) what had driventhem to implement two kinds of cloud applications:Cloud applications that had previously been installed on on-premisescomputersEntirely new cloud-based applications for which there had been noon-premises versions beforeHow they rated a set of drivers that we offered provides insights into themotivations for adopting cloud applications. We’ll start with the factors thatpushed companies to shift on-premises apps to the cloud.Shifting On-Premises Apps to the Cloud: IT Cost-Cutting Isn’tthe Leading DriverAmong U.S. and Asia-Pacific companies, the most important driver of shifting onpremisesapplications to the cloud is not what many think it would be – to reducetechnology costs (although that is a key driver). Ahead of that is something that isnot as well understood by the press, analysts and others covering cloud trends:standardizing applications and the business operations that those applicationssupport.Numerous large companies – especially those with multiple businessunits/divisions – are saddled with huge duplications in technologies: commercialapplication software packages, hardware and data centers that are serveindividual business units (and sometimes even just a single compute-intensivebusiness function such as R&D or manufacturing in a division). By givingcompanies the ability to take such applications out of departmental or businessunit data centers and put them in a centrally accessible location – a privateor public data center that hosts the applications – cloud computing creates theprospect of standardizing applications across a big business.The major telco that we spoke with said offering standardized cloud applicationswill help its business units reduce their IT costs and the need for so many datacenters (which today are in the hundreds). Having dozens of financial, HR,customer management and other applications today – each devoted to a narrowslice of its business – has resulted in huge IT costs (software, hardware and datacenters). In fact, the company believes that its shift to cloud applications will helpit reduce its number of data centers by 80%, which would produce an estimatedannual cost savings of $100 million to $200 million.015

Another highly rated driver of cloud applications in both the U.S. and Asia-Pacificcompanies was increasing applications or systems “flexibility.” In both regions, this was thethird most important driver of shifting on-premises applications to the cloud. What doesthis mean? It refers to the ability to scale an application up or down.Exhibit III-1U.S.: Why Companies are Shifting On-Premises Applications to the CloudTo standardize applications andbusiness processes46%32%To reduce IT costs41%30%To increase application flexibility (ability tolaunch or shut down applications quickly)45%26%To improve data and trend analysis41%24%To make faster applications enhancements46%19%To reduce application downtime39%25%To improve applications maintenance43%17%0% 10% 20% 30% 40% 50% 60% 70% 80% 90%Important FactorVery Important FactorThe need to process “big data” – huge volumes of transactional and other digitized data(video, social media chatter, and other) -- appears to be a big driver of cloud applications.Nearly two-thirds (65%) of the U.S. survey respondents they were driven to the cloudto improve the way they gathered and analyzed data (rated as an important or veryimportant factor). A similar number of Asia-Pacific companies said this was an importantor very important driver of their shift to the cloud. Less than half (47%) of the Europeancompanies said it was an important or very important factor in using cloud. However, 80%of the Latin American companies said this was an important or very important factor. Oneof the biggest differences that we found between the companies that had generated thelargest benefits from the cloud and the ones that had generated the least benefits was, infact, their interest in using the cloud to manage “big data.” (See sidebar, “Big Data and thePush for Cloud.”)016

Why Companies are Using Cloud ApplicationsBig Data and the Push for CloudOur U.S. data shows that savvier uses of cloud applications are distinct in many ways – oneof which is their interest in using the cloud to process and analyze volumes of digital data.We compared the answers of the companies in the top quartile of benefits achieved fromshifting on-premises apps to the cloud (the “leaders”) to those in the bottom quartile(“laggards”). Some 74% of the leaders said using the cloud to process and analyze data fortrend identification was important or very important. But a much lower percentageof laggards (55%) said that was a key driver.We found a similar set of drivers in the Asia-Pacific companies that we polled. The threemost important drivers in this region – just like in the U.S. – were 1) standardizingapplications and business processes, 2) reducing IT costs, and 3) increasing applicationflexibility.The biggest factor driving Commonwealth Bank of Australia to shift on-premisesapplications to its private cloud was to use the savings in IT costs to providing more bankservices through mobile applications and social media. “For us, cloud is not just abouton-demand, selective scalability and automation,” says Rajasingham. “It’s also about selffundingIT, removing cost from running the business – and reallocating that intodelivering more value-added services.”Exhibit III-2U.S.: Cloud "Leaders" Place Much GreaterImportance on Using Cloud to Process andAnalyze Data to Identify Trends50.00%44.78%45.00%38.81%40.00%35.00%32.84%29.85%30.00%25.00%20.00%19.40%16.42%15.00%10.00%7.46%4.48% 5.97%5.00%0.00%0.00%Not at all Importantof Minor ImportanceSomewhat ImportantImportantVery ImportantLaggardLeader017

Exhibit III-3Asia-Pacific: Why Companies are Shifting On-Premises Applicationsto the CloudTo standardize applications andbusiness processesTo reduce IT costsTo increase application flexibiity (ability tolaunch of shut down applications quickly)To reduce application downtimeTo improve applications maintenanceTo improve data and trend analysisTo make faster application enhancements44%46%45%44%45%34%40%33%29%29%27%24%32%26%0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%ImportantVery ImportantIn both Europe and Latin America, the most important driver of shifting to cloudapplications was the need to increase “system flexibility” – the ability to launch or shutdown applications quickly.Exhibit III-4Europe: Why Companies are Shifting On-PremisesApplications to the CloudTo increase applications flexibility (ability tolaunch or shut down applications quickly)46%20%To reduce IT costsTo standardize applications andbusiness processesTo reduce application downtime34%38%37%29%24%21%To improve applications maintenance39%13%To make faster applications enhancements37%15%To improve data and trend analysis34%13%0% 10% 20% 30% 40% 50% 60% 70%ImportantVery Important018

Why Companies are Using Cloud ApplicationsIn Latin America, standardizing applications and business processes ranked below fourother drivers, which were led by increasing application flexibility. IT cost-cutting was ratedthe lowest of the seven options we provided. Perhaps Latin American companies look atcloud less as giving them more efficient ways to deploy computing applications and moreas a tool giving them a greater ability to adopt strategic applications of technology.Exhibit III-5Latin America: Why Companies are Shifting On-PremisesApplications to the CloudIncreasing applications flexibility (ability tolaunch or shut down applications quickly)To improve applications maintenanceTo make faster applications enhancementsTo improve data and trend analysisTo standardize applications andbusiness processesTo reduce systems downtimeTo reduce IT costs39%47%35%40%37%46%32%44%35%47%40%42%32%37%0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%ImportantVery ImportantWhy Companies are Launching Entirely New Applications in the Cloud: TheyWant to be Quicker to the Punch with New Business ProcessesWe also surveyed companies about any new applications that they launched inthe cloud – applications for which they had no previous versions installed on theiron-premises computers. In three of the four regions (all except for Europe), thefactor rated as the most important was the need to institute new businessprocesses to generate revenue and increase customer loyalty.This was not a surprise to us. Increasingly, companies are doing business withcustomers online, and cloud computing can give those businesses a faster route tochanging the way they do business on the Web. The Web has become a criticalplace for many customers to find out about a company’s products and services,place orders, check on shipment status, and (post-delivery) get answers toquestions about how to use the product or otherwise get support.019

Take the case of Dell Inc., the multibillion-dollar supplier of innovative technology andtechnology services. One of the Round Rock, Texas-based company’s online marketinggroups caters to large corporate and government customers (the Public and LargeEnterprise business unit). It has put cloud applications at the center of the marketing toolstrategy that it uses, according to Rishi Dave executive director of online marketing. Manyvendors of online marketing tools – for example, those that assess social mediainfluencers – provide their products via the cloud, he explained. Using cloud vendors’applications enables Dell’s online marketing function to execute online marketing, socialand community programs without having to “touch our internal infrastructure,” Daveexplains.The cloud helped Dell introduce gamification to customers and prospects at the 2011 DellWorld conference. In the four months prior to Dell’s first Dell World client conference(which ran from Oct. 12-14, 2011 in Austin, Texas), Dell’s online marketing group decidedto provide gamification to motivate customers to download Dell marketing content, visitphysical locations at the conference, and network with each other. By using the cloudbasedgamification services of one vendor, Dell was able to plan and execute the projectin less than four months.Exhibit III-6Europe: Why Companies are LaunchingWhole New Applications in the CloudTo launch new applications fasterTo launch new business processes that increaserevenue and customer loyaltyTo enter new markets faster36%37%33%20%24%22%To test new products/servicesTo test new business processesTo launch new products/services thatgenerate revenue32%33%32%18%16%17%0% 10% 20% 30% 40% 50% 60% 70%ImportantVery Important020

Why Companies are Using Cloud ApplicationsExhibit III-7U.S.: Why Companies are LaunchingWhole New Applications in the CloudTo launch new business processes that increaserevenue and customer loyaltyTo launch new applications fasterTo enter new markets fasterTo launch new products/services thatgenerate revenueTo test new business processesTo test new products/services39%47%36%34%35%39%32%22%24%23%19%14%0% 10% 20% 30% 40% 50% 60% 70% 80%Important FactorVery Important FactorExhibit III-8Latin America: Why Companies are LaunchingWhole New Applications in the CloudTo test new business processesTo enter new markets fasterTo launch new applications fasterTo launch new products/services thatgenerate revenueTo test new products/servicesTo launch new business processes that increaserevenue and customer loyalty49%37%37%37%49%40%35%42%40%39%26%25%0% 10% 20% 30% 40% 50% 60% 70% 80% 90%ImportantVery Important021

Exhibit III-9Asia-Pacific: Why Companies are LaunchingWhole New Applications in the CloudTo test new business processesTo launch new applications fasterTo launch new products/services thatgenerate revenueTo enter new markets fasterTo test new products/services thatgenerate revenueTo launch business processes43%44%39%32%41%43%31%26%28%34%25%20%0% 10% 20% 30% 40% 50% 60% 70% 80%ImportantVery ImportantCTB/McGraw-Hill: Looking to the Cloud to Set the Pacein Online Student TestingCTB/McGraw-Hill is one of the three largest suppliers of assessment tests for public andprivate schools in the U.S. and other countries. Million of students in all 50 states take CTB’stests. They help school districts and states rate the quality of the teaching delivered in theirclassrooms, as well as determine how to improve it.The company, based in Monterey, Calif., believes cloud computing will be essential forcompeting in a highly price-sensitive market (U.S. public schools). CTB/McGraw-Hill alsofeels that cloud will be critical to shifting its testing services from a paper-and-pencilprocess to an online experience – one with great potential to improve teachers’ abilityto address students’ learning deficiencies. The company believes cloud computing willbe a crucial channel for delivering its products and services to school districts in the future.But given the nature of CTB’s business – delivering tests to hundreds of thousands of K-12students over two weeks each year – that creates enormous demand for the ability to scalecomputing resources up or down to administer online tests, which it believes will be thewave of the future. “Given that we have high spikes in capacity, we must be able to increaseit and lower it quickly,” says CTB’s chief technology officer, Jayaram “Bala” Balachander.“We can’t do that today. That’s where cloud will be critical.”022

Why Companies are Using Cloud ApplicationsIn 2011, CTB delivered online assessment testing to 180,000 U.S. K-12 students over a twoweekperiod. With each student taking as many as five tests, this meant the company hadto score 800,000 online tests concurrently. “This lends itself very much to the cloudbecause we can go up or down depending on the activity in our business.” In 2012, thenumbers are expected to more than double, creating an increasing need for ramping upand down infrastructure resources. As a result, CTB is experimenting with cloud-basedsolutions.Balachander predicts that about a million U.S. students will take their assessment testsonline (including CTB’s tests) in 2012. Moreover, with U.S. schools wanting 100% of theirassessment testing to be online at some point, that would require CTB to have thecomputing resources to serve the online assessment needs of millions of Americanchildren in K-12 grades at once, a number he believes could be reached as early as 2015.Even if that turns out to be a smaller number in three years – say 75% of the 55 million U.S.students take online assessment tests -- if CTB commanded a 20% share of that market,it would need computing resources to support the delivery and scoring of more than 40million tests in a short period of time. “It would be very difficult for us to do that without thecloud – to invest in the infrastructure from a capital expenditure standpoint, and thenmake the ongoing technology investments,” Balachander explains.By this August, CTB intends to shift six to eight on-premises applications to the cloud, oneof which is the online testing. The firm’s website and extranet are also being evaluatedas potential candidates to put in the cloud.Balachander believes all new CTB applications should be cloud applications. “With newapplications, we are saying that by default we should put them in the cloud.”“At the end of the day, CTB needs IT services that can adapt to varying scalability demands,”Balachander says. “We clearly don’t want to invest in fixed infrastructure costs to handleour spikes in volume and scalability. The current set of cloud services and ongoingadvances in technology in this area give us an ability to approach our infrastructure needsin a whole different way.”023

IV.The Benefits ThatCompanies Have Gainedfrom Cloud Applications021

The Benefits That Companies Have Gained from Cloud ApplicationsWe asked the companies we surveyed whether their use of cloud applications hadgenerated benefits – both cloud applications that they shifted from on-premisescomputers, as well as whole new cloud applications for which they previously had no onpremisesversions. For both types of cloud applications, their answers indicate that cloudapplications are generating significant improvements in operational and financialperformance.Benefits from Shifting Existing Apps to the CloudIn all four regions of the world, the average benefits from cloud applications of this typewere impressive, especially in Latin American and Asia-Pacific companies:In IT costs, 28% (Europe) to 55% (Latin America) average reductionsIn standard applications and business processes, between 34% (Europe) and 60%(Latin America) increases in the number of apps and business processes that have beenmade common across a company or business unitIn cycle-time reductions to ramp IT resources up or down (a measure of “flexibility”):between 35% (U.S.) and 64% (Latin America) reductionsIn systems downtime, 33% (Europe) to 59% (Latin America) reductionsIn the time it takes to enhance applications, 37% (U.S. and Europe) to 57% (LatinAmerica) reductionsApplication fixes, from 35% (U.S.) to 64% (Latin America) reductions in the numberof patchesInanalytic reports, from 34% (Europe) to 66% (Latin America) increases in the numberof reports, which gives companies greater ability to mine and analyze volumes of dataThe more aggressive adopters of cloud computing – Latin American and Asia-Pacificcompanies (which had higher percentages of cloud apps to total corporate apps) – alsoreported much greater benefits from their cloud apps. Why is this the case? Perhapsgreater benefits is a function of experience; the more you use cloud applications, the moreknowledge you gain about how to deploy and use them, and thus the greater likelihoodto generate benefits. Or it could be that using a higher number of cloud applicationssimply brings more cumulative benefits.025

For a $5 billion consumer products company, the cloud enabled one of its businessfunctions to implement a new application without needing the typical “$10 million and18 months to build it,” says an IT executive in the company. And the aforementioned telcohopes that standardizing applications through its private cloud data centers will help itreduce the number of those centers by 80% and save as much as $200 million in annualIT costs.Exhibit IV-1Comparing 4 Regions of the World on Benefits Achieved FromShifting On-Premises Applications to the Cloud% increase in number of analytic reports(ability to mine and analyze data)% reduction in number of application fixes% cycle-time reduction in makingapplication enhancements% reduction in systems downtime% reduction in cycle time to ramp ITresources up or down% increase in standardized apps andbusiness processes they support% reduction in IT costs40%34%42%35%36%43%37%37%42%34%33%39%35%36%41%38%34%41%31%28%37%66%64%57%59%64%60%55%0% 10% 20% 30% 40% 50% 60% 70%United States Europe Asia-Pacific Latin America026

The Benefits That Companies Have Gained from Cloud ApplicationsCompanies Report Sizable Benefits from Launching WholeNew Apps in the CloudWe also asked survey respondents to report on benefits received to date from newapplications that they launched in the cloud. Specifically, we had them indicateimprovements in six areas:Testing of new business processes that they would have considered too costly to testprior to the advent of the cloud (because of excessive technology costs). Here we askedthem to indicate the percentage increase in new business processes tested.The number of new business processes they actually launched or institutedThe number of new products/services they testedThe number of new products/services they launchedThe annual revenue increase from launching new products/services in markets thatthey already servedThe average reduction in the time it took to enter new markets with newproducts/servicesWhile the average percentage improvements in these areas were about half those thatcompanies reported from shifting on-premises applications to the cloud, they werenonetheless noteworthy:Increases from 15% to 19% in the number of new business processes tested andlaunched in U.S., Europe and Asia-Pacific companies. Latin American companies,however, reported higher average numbers (22-27%)Increases from 13% to 19% in the number of new products or services tested andlaunched by companies in the U.S., Europe and Asia-Pacific (which, again, trailed the31-32% increases in new products/services in Latin America)An average 14-17% reduction in cycle time to enter new markets with newproducts/services in the U.S., Europe and Asia-Pacific (bested again by Latin Americancompanies, which claimed an average 35% cycle time reduction)Average revenue increases of 13-17% from launching new, cloud-based products andservices in existing markets (vs. an average 32% revenue increase reported by LatinAmerican companies)027

Exhibit IV-2Comparing 4 Regions of the World on Benefits Achieved FromLaunching Whole New Applications in the Cloud% cycle-time reduction to enternew markets% increase in revenue from newproducts/services in existing markets% increase in number of newproducts/services launched% increase in number of newproducts/services tested14%16%17%13%14%18%13%17%18%15%17%19%35%32%32%31%% increase in number of new businessprocesses launched% increase in number of new businessprocesses tested15%17%18%15%16%19%22%27%0% 5% 10% 15% 20% 25% 30% 35% 40%United States Europe Asia-Pacific Latin AmericaAt AOL, a Private Cloud is Helping the Shift to a WebAdvertising ModelThree decades ago AOL Inc. was a trailblazer in opening the online world to the Americanpublic. Today, despite competition from Facebook, Google, Yahoo and many other sites,AOL remains the sixth most heavily visited U.S. Website, with 106 million unique visitors inNovember 2011. The $2.4 billion company will be 30 years old next year, an unusuallifespan in an industry that buried AltaVista, Boo.com, Pets.com and many other onlinecompanies long ago.AOL outlasted them all because of its ability to shift strategies quickly and capably as theWeb created new capabilities and competitors. The company has reincarnated itselfseveral times – from proprietary online service in the early 1990s (supported bysubscription fees) to Internet access provider in the late 1990s and 2000s (dial-up accessfees) to online media content provider today (funded by advertising). In just the last fiveyears, the company’s revenue mix has changed from about 43% advertising/54%subscription to 60% advertising/40% subscription and other.028

The Benefits That Companies Have Gained from Cloud ApplicationsBut because of its long history of providing online services such as email, instantmessaging and Web media and entertainment content, AOL had accumulated a vastamount of computers, storage, other computing devices and software over that time, saysMichael Manos, senior vice president of technologies at AOL. He has a playful name for thistechnology tangle: “cruft.” These legacy systems can weigh down companies that mustcontinually adopt new web technologies while keeping IT infrastructure costs low.This is especially the case at AOL, whose strategy today requires focusing investmentson online content and the people who produce it.“Cruft adds tremendous complexity to a company’s technology operations and makesit difficult for it to be agile,” Manos explains.To reduce its IT costs, AOL has embraced a private cloud infrastructure over the last year.It has dramatically lowered the technology expenses of sales, marketing and customerservice. Manos estimated that 20% of the company’s business applications have movedto cloud in the last six months, and that another 15% will shift by mid-year.That’s crucial in a company whose subscriber revenue has been falling sharply over theyears. A decade ago, AOL had about 30 million subscribers. Today, the number is around4 million. In 2011, the company reduced total expenses more than $500 million to makeup for the decline in subscription revenue.Adopting a Private Cloud at Light SpeedManos joined AOL in January 2011 after 17 years of managing data centers for such mediaand technology icons as Walt Disney Co., Microsoft, and Nokia. He had earned a solid trackrecord in making data centers more effective and efficient.In just 90 days, Manos and his team implemented AOL’s first-ever private cloud in a newdata center the company calls ATC. (AOL operates three other data centers in the U.S. – twoin Virginia and one in Silicon Valley.) Since going live last Oct. 1, ATC and the private cloudhave enabled AOL to shut down about 10,000 computer servers at its other computerfacilities. Furthermore, AOL’s private cloud can more quickly increase the firm’s computingcapacity on demand, without the need for additional manpower. Such “dynamicscalability” is essential in a business like AOL, where breaking news such as election resultsgenerates huge spikes in viewers clicking on its websites.Because of its private cloud, AOL can now get a new server up and running in just minutes,compared to 6-12 weeks a decade ago. In fact, on the ATC data center’s first day ofoperation, it took only an hour to have nearly 100 virtual servers running. Manos saysprovisioning a new server now takes only about 5 minutes via the cloud, compared to the8-12 hours it previously took. “We now can spin up capacity extremely quickly,” he says.“More importantly, we can spin down capacity very quickly. So it’s given us a substantialamount of agility within our business that we’ve never had before.” The cloud has alsoreduced energy costs. The more efficient servers at ATC (about 800 in all) have replaced3,000 old servers, paring AOL’s electricity bill by about $700,000 a year.029

Biggest Barrier to Embracing the Cloud: IT PeopleManos says the biggest barrier to adopting cloud technology at AOL is that IT employeesworry that cloud technology will replace them. However, companies like AOL have nochoice but to reduce costs in technology and other realms. ATC is a 100% “lights-out”facility, meaning it doesn’t need anyone operating the machines on its premises. Manos’team of five people can now manage 12,000-15,000 servers that are spread across thecompany’s data centers. Still, the main objective is not to eliminate IT staff but ratherto deploy them in jobs where they can play a more important role.Manos has gained support for cloud computing throughout AOL, from the CEO down.Through regular emails, newsletters and meetings, CEO Tim Armstrong has gone to greatlengths to make the transition transparent. Armstrong has become a big proponent of thefirm’s private cloud because of the cost savings and ability to launch new Web contentmore quickly.“If you would have told me nine months ago that the CEO would be talking about thetechnology side of the business, I would have said you were crazy,” Manos says. “But he isnow saying that AOL is a technology company as well as a media company.”Major Telco: Cloud as Game-Changer and Data CenterConsolidatorThis company sees cloud as a major external and internal opportunity -- to sell newservices to customers and induce large reductions in its technology costs as wellas standardized business processes and applications software.Top management at the telco believes that if the company wishes to get numerouscustomers to adopt cloud services, it must demonstrate how it has benefited from usingthe cloud internally. With that mandate, the company in the last two years has movedfinancial systems such as general ledger, payables and fixed assets to its private cloud. It isalso moving human resource applications to the cloud (including the corporate emailsystem, and employee savings and financial plans). Customer records ordering andprocessing will move to cloud as well. All in all, the company has moved 30% of itsapplications to its private clouds (data centers that it owns and operates), a number ithopes will reach 80% by year-end.The company is moving to organize its IT architecture completely around its privateclouds, with the intention of eventually putting all applications in the cloud and providingcloud services for each company business unit. Today, its business units have their ownfinancial, HR, customer management and other systems. That, of course, results in largeduplications of software, hardware and data center space that could be consolidatedif business units could standardize on many fewer applications and let them run onhardware at fewer but centrally managed data centers.030

The Benefits That Companies Have Gained from Cloud ApplicationsIf the firm can achieve this, it believes it will reduce the need for dozens of data centers(reducing the number by as much as 80%), which would achieve cost savings in the rangeof $100 million to $200 million.What must the company do to reach such ambitious goals? The two biggest obstacles thatwe heard were “fear of the unknown” and “fear of losing control” – both coming especiallyfrom the IT functions within the company’s business units.That said, the company believes the issue is no longer whether the company will broadlyadopt cloud computing but rather how quickly it will do so. “We believe cloud issomething that is going to be gaming-changing,” said one executive. “It’s going to becomea way of life. I think we’re at the very beginning of this, and that many companies have a‘toe in the water’ approach because of the security concerns.” The gating factor, hebelieves, is whether cloud vendors can provide a highly secure service with nearly 100%uptime.031

029V. Which Business Functionsare Using the Most CloudApplications

Which Business Functions are Using the Most Cloud ApplicationsWith cloud applications representing anywhere from 12% (Europe) to 39% (Latin America)of total applications at the companies we surveyed, it is clear that they have becomea fixture in large corporations. But we also wanted to know exactly how companies wereallocating their cloud application budget, business function by business function.So we asked our respondents to estimate how their companies had apportioned theirspending on cloud applications across 10 core business functions: customer service,marketing, sales, manufacturing (or the equivalent of “production” or “operations” inservice firms), research & development, human resources, distribution, purchasing,finance, and legal. Furthermore, we asked companies to estimate their budget allocationsat present (for 2011) and their projections for 2014.For 2011, spending on cloud applications is, for the most part, spread well across all 10functions. Across all four regions of the world, not one business function had commandedmore than 19% of the total cloud applications budget. In Latin America, customer servicecloud applications were 19% of total cloud applications spending. And in Europe, themarketing function garnered the largest slice of the total cloud applications budget,at 18%.On the other end of the spectrum, none of the 10 business functions received an averageshare of less than 4% of total cloud applications spending in any region of the world.Distribution and purchasing received 4% of the total cloud applications budget in Europe,and legal received 4% of the average cloud applications budget in Asia-Pacific companies.Despite that fragmented spending, in all four regions three functions collectivelycommanded at least 40% of total cloud applications investments: customer service (15%of total spending across all four regions), marketing (14%) and sales (13%). Of course,these three functions are “customer-facing”: their operations directly touch a company’scustomers on a daily basis. In contrast, three functions that don’t touch customers everyday – legal, purchasing/procurement and HR – collectively accounted for only 19% of thetotal cloud applications budget.033

There were a few regional exceptions to overall trend. In Asia-Pacific companies, themanufacturing/production function accounted for 14% of total cloud applicationsspending – twice the percentage of U.S. companies. In Latin America, companies spentmore on manufacturing/production cloud apps (12% of total cloud applicationsspending) than they did on marketing apps.Exhibit V-12011: How Companies Around the World are Dividing Their CloudApplications Budgets(Functional Spending on Cloud Apps as % of Total Company CloudApps Spending)20%18%16%14%12%10%8%6%4%2%0%18%16%13%10%19%17%15% 15%13% 13%11%9%14%12%10%10% 9% 9% 10% 10% 10%8%8%8% 8%7%6%5%6% 6% 6% 6%5%4%4% 4%5%7%5%4%14%9%2%0%MarketingSalesCustomer ServiceManufacturing/ProductionHuman ResourcesFinanceR&DDistributionPurchasingLegalOtherUnited States Europe Asia-Pacific Latin AmericaWhy are companies in all four regions putting more of their cloud applicationsinvestments in these three customer-facing functions? We believe it’s in part because suchcloud applications are more directly able to generate revenue or increase customer loyaltythan cloud applications supporting back-room functions. The other part of it is thatcompanies are starting to recognize the value of cloud computing for processing andanalyzing enormous volumes of customer data – particularly data generated fromcustomers and prospects on the Web from social media.034

Which Business Functions are Using the Most Cloud ApplicationsIn the U.S., 58% of companies had shifted to the cloud on-premises applications thatreported and analyzed sales data. Nearly half (45%) had created entirely new applicationin the cloud for sales analysis and reporting. And 44% of U.S. companies plan by 2014to have new cloud applications that collect and analyze social media data, four times thenumber of companies that had such cloud applications in 2011.How Companies Plan to Allocate the Cloud Applications Budget in 2014The companies we surveyed believe that sales, marketing and customer service willcontinue to snare the largest shares of their cloud applications investments through 2014.Among U.S. companies, marketing (15% of all cloud applications spending), sales (15%)and customer service (14%) will lead the way. In Europe, marketing (16%), sales (19%) andcustomer service (10%) will account for 45% of all cloud apps spending. Asia-Pacificcompanies expect to continue investing more heavily in cloud manufacturing apps (15%of the total cloud apps budget), although they project that 35% of total spending will go tomarketing, sales and service. And Latin American companies expect marketing, sales andservice cloud apps to be 44% of total cloud apps spending.Exhibit V-22014: How Companies Around the World Project How They'll DivideTheir Cloud Applications Budget(Functional Spending on Cloud Apps as % of Total Company Cloud Apps Spending)20%18%16%14%12%10%8%6%4%2%0%19%19%16%15% 15%14% 14%11% 12%11%12%15%14%12%10% 10%9%10%9% 9% 9%8%8% 8% 8% 8%7% 7%7% 7% 7%6% 6%6%6%5% 4%4%4% 4%5%8%1% 1%MarketingSalesCustomer ServiceManufacturing/ProductionHuman ResourcesFinanceR&DDistributionPurchasingLegalOtherUnited States Europe Asia-Pacific Latin America035

VI.The Most and Least PopularCloud Applications033

The Most and Least Popular Cloud ApplicationsIn the previous section, we mentioned that across all four regions of the world, companieswere in most cases putting the largest share of their cloud applications budgets inmarketing, sales and service. Yet in spite of that, many companies appear to be stayingclear of putting sensitive data into cloud applications.We found this to be the case in looking at other data in our survey. In the U.S. and Europe(where we had large-enough sample sizes to explore what applications companies had inthe cloud in each of the 10 core business functions), we found that the applications thatwere most frequently shifted from on-premises computers to the cloud were those thattypically do not have highly sensitive information on employees, customers, new-productplans, and other data that companies go to great lengths to protect (see Exhibit VI-1).Exhibit VI-1US (2011): Applications Most Frequently Shifted fromOn - Premises Technology to the Cloud (% of Companies)Recruitment/staffingWarehouse managementInventory managementSales analysis and reportingEnterprise resource planning ...Vendor managementProduction mgt (product ...69%67%67%58%56%54%53%0% 20% 40% 60% 80%037

In the U.S., when we looked at the applications that were least frequently shifted to thecloud from on-premises computers, several of them were applications that often storehighly sensitive data:Legal-related – legal management solutions (which can contain the status of lawsuitsagainst a company)Employee-related – compensation planning (employee salaries) and payroll/time andattendance systems (which, of course, in the U.S. can have Social Security information)Product-related – product testing systems (which often compile data on productefficacy and of course reveal a company’s product launches), and pricing andpromotions systems (which,in competitors’ hands, can tipoff pricing changes)Customer-related - customerloyalty (which can revealb u y i n g p r e f e r e n c e s ) ,customer/market researchapplications, E-commerce,and customer analytics - all ofwhich can risk customerp r i v a c y a n d p r o v i d ecompetitors with usefultargeting informationRisk-related – risk assessmentand monitoring systems,which compile data on acompany’s most vulnerableactivitiesIn all five areas, less than 20% ofcompanies had shifted onpremisesapps to the cloud (seeExhibit VI-2).Exhibit VI-2US (2011): Applications Least Frequently Shifted -fromOnPremises Technology to the Cloud (% of Companies)Legal management solutionsE-commercePricing and promotionsCustomer analyticsSocial media data collection and analysisPlant maintenanceCompensation planningPayroll/time and attendanceProduct testing13%16%15%15%18%17%17%17%17%Risk assessment and monitoringCustomer loyalty programsField service/repair12%11%11%Customer/market research6%0% 5% 10% 15% 20%038

The Most and Least Popular Cloud ApplicationsStill, that doesn’t mean that all customer data is being kept out of the cloud. For U.S.companies’ customer service applications, 42% have shifted customer order-entrysystems from on-premises technology to the cloud. And 37% have moved their archivedcustomer records to the cloud. (See Exhibit VI-3.)Exhibit VI-3US: Customer Service Applications Most FrequentlyShifted from On-Premises Technology to the Cloud (% of Companies)Customer product usage tracking26%37%Online customer communities37%63%Post-sales service inquiries37%53%Customer order entry42%58%Archival of customerrecords/company content37%63%0% 10% 20% 30% 40% 50% 60% 70%2014: Expect to Shift Other On-Premises Customer ServiceApplication(s) to Cloud by end of 20142011: Have Shifted an On-Premises Customer Service Application(s) toCloud or Will Have Shifted by End of 2011039

In addition, the numbers in the chart above indicate that many companies’ fears aboutputting customer records in the cloud are likely to subside. When asked what customerservice applications they expected to be in the cloud by 2014, the majority expectedto shift their customer order entry, archives of past customer records, post-sales inquiriesand online customer communities from on-premises to cloud-based applications.In looking at marketing applications, we found such hesitation to put customer data in thecloud looks like it will decline by 2014. At least half of U.S. companies plan to shift customerresearch, e-commerce, customer analytics and social media data to the cloud by then. Andeven 39% of companies say they’ll shift customer loyalty systems to the cloud by 2014.(See Exhibit VI-4.)Exhibit VI-4US: Marketing Applications Most Frequently Shifted from On-PremisesTechnology to the Cloud (% of Companies)External publications28%39%Website hosting28%44%Advertising22%39%Marketing campaign management22%56%Customer analytics17%50%Social media data collection and analysis17%50%E-commerce (product sales from website)17%56%Pricing and promotionsCustomer loyalty program/customer databasemarketing11%17%39%56%Customer/market research6%56%0% 10% 20% 30% 40% 50% 60%2014 2011040

The Most and Least Popular Cloud ApplicationsDell: Riding a Tsunami of New Cloud-Based Marketing ToolsAs the computer company that became known worldwide for its direct model, Dell Inc.has had to master the Web, email and other online marketing tools to get customers in thefold and keep them there. Of course, the company has much to boast about, growing froma concept in the University of Texas dorm room of founder Michael Dell to a multibilliondollarjuggernaut of the global technology industry in less than 30 years.But now comes the cloud. It ushers in a whole new set of online tools that serious onlinemarketers such as Dell must experiment with. In fact, Dell has adopted a marketingstrategy for public and large enterprises that puts cloud applications at the center of itschannels to customers. “The cloud is very appealing to us,” says Rishi Dave, executivedirector of online marketing for Dell’s large corporate, public and government enterprisedivision. “I live in constant paranoia of innovation overtaking us in the online space. So weconstantly are reviewing, evaluating, and testing new offerings from cloud providersto see who is at the leading edge so that we are using the latest, greatest marketing tools.”Online marketing has become a blood sport, especially in the computer industry.Competition in the IT market has become so fierce that products are quicklycommoditized and margins rapidly squeezed. Hundreds of millions of dollars ride everyweek on whether a technology company can troll the vast World Wide Web looking forenterprise customers ready to change vendors. A snarky comment in a LinkedIn orFacebook group, a complaint Tweeted for all to see, and other digital droppings can leada company like Dell to identify a ripe prospect – or a customer ready to defect.Before the advent of social media, the ways companies like Dell used software to trackwhat was being said about them on the Web, in calls with customer reps, and in emails. Butthe world of marketing applications has changed dramatically. Dell uses Salesforce.com tomanage its CRM efforts. And now the Round Rock, Texas-based IT giant is also using othercloud vendors’ marketing-related applications. “This means we can innovate morequickly,” says Dave.He is experimenting with cloud-based gamification - as Wikipedia defines it, “the useof game design techniques and mechanics to solve problems and engage audiences” -to both entertain and enlighten current and prospective customers. The company seesgamification as important for getting rapid feedback on new products and marketingcollateral.041

Gamification Delivered in the Cloud: The New Dell MarketingToolA great example of how Dell drove results fast with cloud-based marketing applicationscame at its first annual conference for global customers, Dell World, held last October inAustin. Four months prior to the conference, Dave and other online marketers at Delldecided they needed a novel way of interacting with attendees, one that would engagethem more deeply and give Dell a deeper understanding of what solutions customerscared about. Working with a cloud-based gamification vendor, Dell used mobilegamification to reward attendees for downloading Dell content at the event, sharing itwith their peers, and letting others know about it through sending out Tweets, visitingphysical locations at the conference, and exchanging contact information.A big advantage of working with a cloud vendor for the game application was that Dell’sonline marketing group didn’t have to request a system that would touch the company’sinternal IT infrastructure.The Biggest Barriers to Adopting Whole New CloudApplications: Giving Up Control and Changing the Way DellMarketsIn working with vendors of cloud-based marketing applications, Dell has had to learn howto deal with a new set of business partners – many of which are small startup companiesthat need to handle a large, global firm. “When you no longer own the technology, youhave to be much better at managing cloud vendors and developing partnerships,”explains Dave, who says the firm evaluates as many as a dozen cloud marketingapplication vendors at any one time. “You have to have a process to identify the rightpartners, and you have to learn to relinquish total control.” In contrast to marketingapplications built internally (over which Dell can determine every feature, function andinterface aspect of the software), using cloud vendors’ marketing applications means Dellmust give up control of product features, look and feel.This, in turn, means Dave and his team must carefully evaluate whether Dell can change itsmarketing processes to take advantage of a promising new cloud-based marketingapplication. “It is relatively easy to identify new tools but a big challenge lies in absorbingthem,” he says. “This requires looking at it from an internal business process perspective.”Cloud applications that require too many internal changes – or vast amounts of training tomaster it – have a much higher barrier to adoption. “A limiting factor is how much training,additional resources, and process changes are needed. Also, providers must eventually beable to scale their capabilities as their organizations grow.”042

The Most and Least Popular Cloud ApplicationsOf course, one of the big attractions of cloud marketing applications to Dell (and many,many other companies) is turning a fixed cost (licensing marketing applications softwareand the purchase of servers to run it) into a variable cost. If the company doesn’t likea particular cloud application that it has been using to sort out sentiments aired about thefirm through social media, it simply stops using the service. Dell doesn’t have to removethe software from servers in its data center – and most of all, it doesn’t have to buy the extraservers need to run the software in the first place. Those applications run on a cloudvendor’s software.All in all, Dell sees cloud-based marketing tools as critical to effective marketing in thepresent and future. Online marketing chief Dave believes that cloud vendors sellingapplications for mobile phones, tablet computers and other highly portable digitaldevices will be especially important to Dell given that its large-company customers doa large and increasing share of their daily tasks through such devices.“We constantly trial cloud providers to see who is developing the latest tools,” Dave says.“Our use of such tools will absolutely grow. And as we ramp up our mobile strategy, cloudbecomes critical.” As a case in point, he and his team are already thinking about creatinggames for the next Dell World conference that can be played on any digital interface –smartphones, tablets and PCs.043

041VII. Differences in Cloud AdoptionAcross Global Industries

Differences in Cloud Adoption Across Global IndustriesWe asked our survey respondents (who worked in a variety of business functionsin addition to IT) to indicate the average number of cloud applications that their functionhad been using in 2011. We then looked at their answers by industry in all four regionscombined (in order to get larger industry samples). We had large enough industry samplesto report on 16 major sectors.Exhibit VII-1Comparing Global Industries by Average Number of CloudApplications Per Company/Industry (2011)Computer/electronics/telecom equipment mfgFinancial services/banking/insuranceIndustrial manufacturingTelecom servicesAutomotiveAerospace & DefenseConsumer products manufacturingTransport/logisticsRetailComputer softwarePharmaceuticalsMedia/entertainment/sportsMetals & MiningEnergy & utilitiesChemicalsHealthcare services3.63.396.816.376.185.835.745.75.655.485.255.14.834.434.458.540 1 2 3 4 5 6 7 8 9Average # of Cloud Apps per Business Function (2011)045

The industries’ usage of cloud applications per function ranged from 8.54 at the high end(in computer/electronics/telecommunications equipment manufacturing) to 3.39 at thelow end (healthcare services/providers). (See Exhibit VII-1.) For 2011, the industries withthe greatest number of cloud applications per business function were:Computer/electronics/telecom manufacturing (by far the largest number of cloudapps per function)Financial services/banking/insuranceIndustrial manufacturingTelecommunicationsservices (carriers)Industries with the fewest number of cloud apps per function were healthcare services,chemicals, energy and utilities, metals and mining, and media/entertainment/sports. Themedia industry’s relatively low adoption of cloud computing may reflect its reluctance toput its intellectual property in the cloud – particularly, public clouds – for fear of digitaltheft.We also asked the survey respondents to project how many additional cloud applicationsthey expected their business function to have by 2014 – applications not including thosetoday. We thus were able to calculate their projections on the total number of cloudapplications that they expected to see in their functional area. The range of thoseapplications/function went from 9.25 to 19.4 – effectively a doubling of apps/functionat the high end and a nearly tripling of apps/function at the low end.Once again the industries expecting the largest number of cloud apps/function were thesame four: computer/electronics/telecom equipment manufacturing, telecom services,financial services and industrial manufacturing.However, the projections of the retail and transportation/logistics survey respondentswould have them vaulting higher in the list by 2014 – over automotive,aerospace/defense and consumer products manufacturers.046

Differences in Cloud Adoption Across Global IndustriesExhibit VII-2Comparing Global Industries by Average Number of CloudApplications Per Company/Industry (2014 Projected)Computer/electronics/telecom equipment mfgTelecom servicesFinancial services/banking/insuranceIndustrial manufacturingTransport/logisticsRetailAerospace & DefenseComputer softwarePharmaceuticalsConsumer products manufacturingAutomotiveMetals & MiningEnergy & utilitiesHealthcare servicesChemicalsMedia/entertainment/sports19.4217.9617.5615.2414.3313.5513.3513.3313.2513.2313.1612.3610.8710.789.739.250 5 10 15 20 25Industry Leaders in Cloud Apps/Function (2014) Total Cloud Apps per Function047

Heavier Users of Cloud Applications Get Bigger BenefitsIn addition to wanting to know which industries were heavier users of cloud applicationsthan were other industries, we wanted to know which sectors were better users of thecloud. It turned out that the industries with higher numbers of cloud apps per function in2011 were industries that were enjoying greater benefits from cloud applications – boththose that were shifted from on-premises computers and those that were entirely newapplications made possible by the cloud.To better understand which industries were generating the most value from cloudapplications, we analyzed our data by first rolling up the responses across all four regionsof the world and then categorizing them by industry. That left us with 16 industrysegments with at least 12 respondents per industry. We then sorted these respondentsout by understanding which ones finished in the upper or bottom quartile of resultsto date from cloud applications. That left us with “leaders” and “laggards” in each industrysector based on who had generated the greatest benefits from: sector based on who hadgenerated the greatest benefits from:Cloud apps they have shifted from on-premises computers. The “leaders” here werecompanies that had generated the greatest improvements in such metrics as IT costreductions, increases in standard apps and business processes, cycle-time reductionsin ramping IT resources up or down and in application enhancements, reductionsin system downtimes and application fixes, and increases in analytics reports.Entirely new cloud apps for which they had no on-premises predecessors. These“leaders” finished in the upper quartile of aggregate benefits in percent increase in newbusiness processes tested and launched, percentage increases in newproducts/services tested and launched, annual revenue increases from new offeringsin existing markets, and cycle-time reductions to enter new markets.Industry by industry, in each of the two areas above, we looked at which ones had a largerpercentage of “leaders” than “laggards.” The findings revealed several surprises.Industry Leaders and Laggards in Shifting On-Premises Appsto the CloudThe industries with a much higher percentage of “leaders” than “laggards” were:Automotive (31% of whom were “leaders” and 19% were laggards)Computer/electronics/telecom equipment (29% vs. 17%)Aerospace & defense (29% vs. 19%), andBanking/financial services/insurance (29% vs. 19%).In contrast, the industries with much higher percentages of laggards than leaderswere:Pharmaceuticals (15% were “leaders” vs. 40% that were “laggards”)Media/entertainment/sports (17% to 33%), andEnergy& utilities (21% to 33%)048

Differences in Cloud Adoption Across Global IndustriesExhibit VII-3Global Industry Leaders and Laggards (in % of Companies with Upperand Lower Quartile Results) from Shifting On-Premises Applicationsto the CloudComputer hardware/electronics/telecom …AutomotiveAerospace & DefenseBanking/Financial Services/InsuranceRetailersIndustrial manufacturersConsumer products manufacturingHealthcare servicesMetals & MiningTelecommunications servicesChemicalsTransportation/logisticsComputer softwareEnergy & UtilitiesMedia/entertainment/sportsPharmaceuticals17%19%19%19%21%22%27%21%21%18% 22%20% 27%24%17% 25%21%15%17%29%31%29%29%29%29%33%33%33%32%33%33%40%-30% -20% -10% 0% 10% 20% 30% 40% 50%Differential (% + or -) % of industry sector that are leaders% of industry sector that are laggards049

Industries Leaders and Laggards in Putting New Applicationsin the CloudWe did a similar analysis of leaders and laggards by industry around the data on benefitsachieved to date from launching entirely new applications in the cloud. A different set ofindustries emerged as leaders and laggards here – including leaders that had beenlaggards in benefits from shifting existing apps to the cloud, and laggards that had beenleaders.The industries on this metric with the highest ratios of leaders to laggards were:Computer hardware/electronics/telecom equipment (46% were leaders and 33% werelaggards)Media/entertainment/sports (42% to 33%)Telecommunications services (33% to 24%)Transportation/logistics (35% to 26%)Technology-enabled innovations in products and services are critical to all four of theabove industries, and perhaps that’s why they have more leaders than laggardsin launching new cloud applications. In the computer industry, Dell Inc. is one of a numberof companies that are tapping cloud services to market products and services to bothenterprise and consumer customers. (See case study on Dell on p. 41.) In the mediaindustry, educational publishing and testing companies like CTB/McGraw-Hill havebecome highly dependent on scalable technologies that enable them to shift the deliveryof their content from print to online. CTB/McGraw-Hill is looking at cloud-based models asa highly cost-effective way to host its public and private school student assessmentexams. (See case study on CTB/McGraw-Hill, p. 22.)In contrast, five industries had a much greater number of laggards than leadersin generating benefits from entirely new applications they put in the cloud:Pharmaceuticals (25% were leaders vs. 55% that were laggards)Healthcare services (22% vs. 50%)Computer software (8% vs. 33%)Automotive (19% vs. 39%)Chemicals(20% vs. 38%)050

Differences in Cloud Adoption Across Global IndustriesExhibit VII-4Global Industry Leaders and Laggards (in % of Companies with Upper and Lower QuartileResults) from Launching Whole New Applications in the CloudComputer hardware/electronics/telecom equipmentMedia/entertainment/sportsTelecommunications servicesTransportation/logisticsMetals & MiningBanking/Financial Services/InsuranceRetailersAerospace & DefenseIndustrial manufacturersConsumer products manufacturingEnergy & UtilitiesChemicalsAutomotiveComputer softwareHealthcare servicesPharmaceuticals8%33%46%33%42%24%33%26%35%21%29%28%23%40%36%32%29%26%31%23%30%24%39%20%38%19%39%22%25%33%50%55%-40% -30% -20% -10% 0% 10% 20% 30% 40% 50% 60%Differential% of industry sector that are leaders% of industry sector that are laggards051

How the Cloud Has Helped a Consumer Products CompanyScale Up Consumer Interactions Cost-EfficientlyA $5 billion privately held consumer products company has found a cloud-basedapplication to be critical in handling tens of thousands of contacts from consumersannually. “It is a completely [software as a service]-based model for consumer affairs,” saysan IT executive in the firm, which wanted to remain anonymous. “It’s allowed us to handlehuge growth in consumer contacts. It’s established cloud an acceptable option that works,not a technology fad that will go away.”The company’s three biggest applications of cloud have been in consumer affairs(responding to the consumers who purchase its products at retailers), human resources,and travel & entertainment. “Cloud enables us to bring in a new application withoutneeding the $10 million and 18 months to build it,” says the IT director. “And while it doesn’tsolve all of our problems, it’s still a viable option.”The company has long sold its product through retailers, which usually have the first andmost personal interactions with consumers. But the cloud has given the company a highlycost-effective way to get to know its customers better. “Consumer affairs is one of thoseareas that most companies don’t fully appreciate,” says the IT director we spoke with. “Thefirst thing you learn in a marketing class is that getting a new customer is five times moreexpensive than keeping an existing one. The amount of information you can gather fromyour consumers from their interactions with you is truly astounding.”Today the cloud is helping the company understand far more about what’s on theconsumer’s mind – before, during and after the time of purchase – a 360-degree view ofthe consumer.” The company’s head of consumer affairs is a big proponent of cloudapplications as well. The cloud application lets a customer service agent reviewconsumers’ comments and determine what teams within the company should be notified:what country unit and what business function (e.g., packaging issues go to operations,product complaints go to R&D, etc.). At the same time the agent can choose a predesignedresponse letter, customize it, and automatically correct it for spelling mistakes. The agentcan then easily notify the relevant employee of a problem that needs to be resolved.“The agent can use the same customer record to send what we call a ‘task’ to another oneof our users,” explains the consumer affairs executive. “For example, we might alertsomeone in a factory’s quality assurance department to a consumer who called with[a product problem]. The agent creates a task to the quality director in charge ofinvestigations for that product. With the use of special coding, the task will also send anemail to the quality control person announcing [a replacement product] is coming in themail.”The head of consumer affairs uses the cloud system to send monthly reports on consumercomplaints to company’s marketing, packaging, quality and other departments. Thesystem lets the director’s team send out quick online surveys to consumers who have usedthe contact system.“It’s all about building credibility in the brand,” says the consumer affairs executive.With a cloud-based system, the team has the tools to do it on a global basis.052

Differences in Cloud Adoption Across Global IndustriesStaying Technologically Advanced Without All the CostsAlong with providing deeper knowledge about consumers, the cloud has alsodramatically increased efficiency. The IT director told us the firm can now use applicationsfar less expensively and launch them far more quickly than they could in the past. “We’renot in the IT business, or the server farm business, or the application business,” the ITdirector says. “There are people out there that do that better than us.”Using cloud technology also freed up money previously spent on corporate IT, helping thefirm focus its investments on new products (through acquisitions and launches), andmanufacturing and marketing them. Part of the company’s expansion strategy has beento keep a tight grip on costs, including IT. The company’s IT budget is less than half itsindustry average.The company uses cloud applications hosted at a third-party data center (which hasmultiple tenants, and thus is a public cloud). And although the IT director says that a publiccloud can limit how a company configures an application (since other companies mayshare it), the cloud vendor customized it for the company.Security in a Public Cloud Seen as a Red HerringThe IT director hears many IT executives outside the firm worrying about the securityof public cloud services providers. However, he says such concerns are unfounded.“It continues to surprise me that security is a big issue with cloud. I can guarantee thatsecurity of certain cloud vendors is better than what you can do in-house. Some of thesecloud vendors do a better job security-wise than we do, because they do it for so manypeople, and they know that they’re going to get hit on that.”He says the bigger issue is about the legal and regulatory implications of where data ishoused. Nonetheless, these concerns haven’t stopped the company from aggressivelyadopting public cloud applications in its business.053

041VIII. Differences in CloudBenefits by Region of World

Differences in Cloud Benefits by Region of WorldMany articles have been published over the last decade about how emerging economiesin Eastern Europe, Latin America and Asia-Pacific have leapt ahead of the advancedeconomies in their telecommunications networks. By establishing cellular networksrather than continuing to invest in traditional wire-and-telephone-pole landlinenetworks, these emerging economies have built telecommunications systems that offerhigher-speed networks for mobile phones. That, in turn, means their mobile phones cando a lot more bandwidth-intensive tasks than the telecommunications networks ofadvanced economies: television on demand, payments through mobile phones, and thelike. Cellular networks have, in effect, enabled many emerging economies to leap ahead oftheir more advanced counterparts.The findings of this study suggest that a similar phenomenon may be happening withcloud technology. The companies we surveyed in Latin America and Asia-Pacific weremuch more aggressive adopters of cloud (as measured by the percentage of totalapplications that were cloud applications) than were U.S. and European companies.Are smaller Latin American companies leading the way on cloud? On the contrary: Incompanies of less than $1B in revenue, 36% of their total applications software is in thecloud. At companies of greater than $1B in revenue, 42% of their applications are cloudapplications. Large Latin American companies appear to be leading the way in the cloud.Greater Usage of Cloud Means Greater BenefitsThe companies we surveyed in Latin America and Asia Pacific were also biggerbeneficiaries of cloud – they reported generating much larger average benefits. This wastrue for both applications they shifted from on-premises computers to the cloud, as well asfor entirely new applications they placed in the cloud. Latin American companies inparticular reported much larger benefits from shifting on-premises applications to thecloud in the seven metrics that we used – improvements that were in the range of 50%-60% vs. the largely 30% range of improvements for U.S. and European companies.For the six metrics that we tracked in benefits from launching entirely new cloudapplications, Latin American companies, too, far exceeded their peers in the U.S. andEurope. Latin American companies reported improvements in the 20%-30% range vs. inthe teens for U.S. and European companies.Perhaps Latin American and Asia-Pacific companies see the cloud as a way totechnologically leap ahead of their counterparts in the U.S. and Europe, many of which aresaddled with aging IT infrastructures that are not so easily or quickly moved to the cloud.055

Exhibit VIII-1Comparing Regions of the World in Benefits to DateFrom Shifting On - Premises Applications to the Cloud% increase in number of analyticreports (ability to mine and analyzedata)40%34%42%66%% reduction in number of applicationfixes35%36%43%64%% cycle-timapplication reduction in makingenhancements% reduction in systems downtime% reduction in cycle time to ramp ITresources up or down37%37%42%34%33%39%35%36%41%57%59%64%United StatesEuropeAsia-PacificLatin America% increase in standardized apps andbusiness processes they support38%34%41%60%% reduction in IT costs31%28%37%55%0% 10% 20% 30% 40% 50% 60% 70%056

Differences in Cloud Benefits by Region of WorldExhibit VIII-2Comparing Regions of the World in Benefits to DateFrom Launching Whole New Applications in the Cloud% cycle-time reduction to enter newmarkets14%16%17%35%% increase in revenue from newproducts/services in existing markets13%14%18%32%% increase in number of newproducts/services launched% increase in number of newproducts/services tested13%17%18%15%17%19%32%31%United StatesEuropeAsia-PacificLatin America% increase in number of new businessprocesses launched15%17%18%27%% increase in number of new businessprocesses tested15%16%19%22%0% 5% 10% 15% 20% 25% 30% 35% 40%057

IX.Willingness of Companiesto Use Public vs. PrivateClouds041

Willingness of Companies to Use Public vs. Private CloudsWith cloud applications having made more than a foothold in large companies aroundthe world, it might appear that senior executives are putting aside their fears aboutthe security of data and systems in the cloud. But that would be a wrong presumption.Business and IT executives appear to largely endorse the use of applications hostedin “private” clouds – data center(s) devoted to the computing needs of a one company(whether or not that data center is owned by the company or a third party). But they arenot so trustful of applications running in “public” clouds – data centers that third partiesrun for numerous customers.That is what we found from the answers to a series of questions in our survey to gaugeinterest in using public and private clouds for two types of applications software: “core”(strategic applications that provide competitive advantage) and “non-core” (applicationsthat are necessary for doing business but which don’t deliver a competitive edge).In the U.S., for example, only 18% said they would consider or highly consider putting coreapplications in public clouds; in contrast, a slight majority (51%) said they would notconsider it at all or only slightly consider it. Nonetheless, two-thirds (66%) said they wouldconsider or highly consider putting core applications in private clouds. Only 3% said theywould reject the idea out of hand, vs. 30% who would reject putting core apps in publicclouds.Putting non-core applications in the cloud was an entirely different matter. Some 42% ofour U.S. respondents said they would consider or highly consider putting non-core apps inpublic clouds – more than said they would not consider it at all or would only slightlyconsider it (30%). And nearly three-quarters (72%) said they would consider or highlyconsider putting non-core apps in private clouds, a concept rejected by only 3%.European Companies are Even More Conservative About theCloud; Latin American and Asia-Pacific Companies are LessConservativeRelative to their counterparts in Asia-Pacific and Latin America, U.S. and Europeancompanies were far less likely to put core applications in public clouds. But they and theircounterparts in Asia-Pacific and Latin America were far more likely to put core appsin private clouds dedicated to their organizations. Still, European companies were veryconservative on this measure, with less than half (48%) saying they were willing to put coreapps in private clouds (vs. 79% of the Latin American companies that we surveyed).The relatively high percentage of Latin American (30%) and Asia-Pacific (41%) companiesthat are willing to consider putting strategic applications in public clouds signifies thatthey have a higher risk tolerance than their colleagues in Europe (especially) and the U.S.Thus, it appears that private clouds are far more acceptable to most large companies todaythan public clouds – even though private clouds can’t deliver the cost savings of publicclouds, which share costs among many clients.059

Exhibit IX-1How Willing are Companies in 4 Regions to Put Applications in the Cloud?U.S. Europe Asia-PacificLatinAmericaWould consider or highlyconsider putting core appsin public cloudsWould consider or highlyconsider putting core appsin private cloudsWould consider or highlyconsider putting non-coreapps in public cloudsWould consider or highlyconsider putting non-coreapps in private clouds18% 17% 41% 30%66% 48% 60% 79%42% 35% 51% 44%72% 61% 63% 76%% of companies in each region that would consider or highly considerputting applications in the cloud060

Willingness of Companies Demographics to Use Public and vs. Research Private Process Clouds060 066

041X. Key Success Factors inCapitalizing on the Cloud

Key Success Factors in Capitalizing on the CloudAny technology that is as hyped as much as the cloud (remember adulation over artificialintelligence, client-server computing, and the Web in its early years?) generates an almostequal amount of skepticism from those who have seen numerous tech evangelistsover time. Cloud computing, too, has drawn its fair share of unabashed advocates andhard-bitten skeptics.And so when we asked our 606 survey respondents around the world to rate the keysuccess factors in generating benefits from the cloud from a list we provided, the mosthighly rated success factors were overcoming two fundamental fears about cloudcomputing (see Exhibit X-1):That cloud is a highly risky technology from a data security standpoint.Overcoming this fear was rated the most important factor in generating benefits fromcloud in every region. In other words, they seem to be indicating to us, the benefitsare there – one just has to make sure that the pursuit of those benefits is a safe pursuit.Thatthe benefits of cloud are a mirage. The second most important success factorin U.S., Asia-Pacific and Latin American companies was demonstrating returns on cloudinvestments earlier in the process. For European companies, the third most importantsuccess factor was quantifying the potential benefits of cloud upfront. (It was tied forfirst in importance in Latin America.) Both issues point to the skepticism over whethercloud computing can deliver on the benefits that have been bandied abouteverywhere – saving big technology costs, standardizing the ways a company doesbusiness around the world, and much, much more.063

Exhibit X-1Key Factors in Generating Benefits from Cloud Applications: Differences by Region of WorldU.S. Europe Asia-Pacific Latin America1st mostimportantfactorOvercoming ITsecurity concernsOvercoming ITsecurity concernsOvercoming ITsecurity concernsOvercoming ITsecurity concernsQuantifyingpotential benefitsupfront (tied)2nd mostimportantfactorDemonstratingstrong ROI earlyDeterminingwhich on-premisesapps should becloud appsDemonstratingstrong ROI earlyDemonstratingstrong ROI early3rd mostimportantfactorQuantifyingpotential benefitsupfrontQuantifying cloud'spotential benefitsupfrontScoping out legal,regulatory andauditingrequirementsStrong projectmanagementskills4th mostimportantfactorStrong projectmanagementskillsDetermining andsecuring the rightexpertise (tied)Strong projectmanagementskills andDemonstratingstrong financialbenefits early(tied)Strong projectmanagement skillsQuantifyingpotential benefitsupfront (tied)Determiningwhich on-premisesapps should becloud apps (tied)Scoping outlegal, regulatoryand auditingrequirementsDesigning anenterprise ITarchitecturefor cloudservices (tied)Designing anenterprise ITarchitecture forcloud services(tied)064

What Companies Look for in Cloud VendorsIn the U.S., near the bottom of the list of success factors were two that we thought wouldcarry more weight before we fielded the survey: getting the CEO or head of a businessfunction to drive a cloud initiative rather than the IT organization, and overcoming the ITfunction’s fear of a diminished organizational role from the adoption of public clouds – i.e.,from shifting in-house applications to a cloud vendor’s data center. (See Exhibit X-2below.)Exhibit X-2Europe: Key Success Factors in Generating Benefits from CloudApplicationsOvercoming concerns about IT security (e.g., …Determining which on-premises apps should …Identifying and quantifying cloud's potential …Strong project management and execution skillsDemonstrating strong financial benefits early …Determining and securing the right expertiseScoping out legal, regulatory and auditing …Centralizing cloud applications across …Having the CEO or business function head …Overcoming business functions' fear of …Overcoming the IT function's fear of a …Overcoming business unit resistance to …Having many cloud applications rather than …27%42%37%38%42%41%27%38%34%25%32%27%27%20% 9%39%18%21%19%15%13%26%12%14%16%9%11%10%0% 10% 20% 30% 40% 50% 60% 70%ImportantVery Important065

Exhibit X-3U.S.: Key Success Factors in Generating Benefits From CloudApplicationsOvercoming concerns about IT security (e.g., …Demonstrating strong financial benefits early …Identifying and quantifying cloud's potential …Strong project management and execution skillsDetermining and securing the right expertiseScoping out the legal, regulatory and auditing …Centralizing cloud apps across business units …Determining which on-premises applications …Designing an enterprise IT architecture for …Overcoming business functions' fear of …Overcoming business unit resistance to …Having the CEO or functional head driving the …Overcoming IT function's fear of a diminished …Having many cloud applications rather than …33%40%47%41%43%39%42%40%40%42%34%31%31%31%41%29%18%23%21%20%17%16%13%9%14%14%14%9%0% 10% 20% 30% 40% 50% 60% 70% 80%Important FactorVery Important Factor066

Demographics and Research Process066

XI.What Companies Look forin Cloud Vendors041

What Companies Look for in Cloud VendorsIn determining how potential customers evaluate companies that sell cloud applicationservices, it would be quite natural to conclude that price is at or near the top of the listof criteria. Isn’t one of the biggest benefits of cloud computing the ability to save immenseIT costs from not having to fund the often enormous computing hardware costs requiredto run compute-intensive applications? Isn’t cloud about enabling companiesto experiment with promising new applications without having to make investmentsin millions (or tens of millions) of dollars in servers and costly data center space?Cloud is about that, for sure. Most companies said that the ability of a cloud vendorto reduce their IT costs was important. Yet the ability of a cloud vendor to offer rockbottomprices doesn’t top most large companies’ list of buying criteria. In fact, we found“lowest price” the least important of nine factors that we asked executives to rate in tworegions: the U.S. and Asia-Pacific. In Europe and Latin America, the ability to deliver thelowest-price services ranked eighth out of nine factors.Rated far more highly were two criteria (among several): reliability (defined as the abilityto keep applications up and running and available to users) and data security/privacy.They finished first or second in all four regions.Exhibit XI-1Most Important Capabilities of Cloud Application VendorsU.S.EuropeAsia-PacificLatin America1st mostimportant capabilityReliability/uptimeDatasecurity/privacyDatasecurity/privacyReliability/uptime2nd mostimportant capabilityDatasecurity/privacyReliability/uptimeReliability/uptimeDatasecurity/privacy3rd mostimportant capabilityCloud legaland regulatoryexpertiseAdherenceto cloudtechnicalstandards (tied)Contract provisionson service levels,data privacyprotections, etc.Adherence tocloud technicalstandardsContractprovisions onservice levels,data privacyprotections, etc.4th mostimportant capabilityContract provisionson service levels,data privacyprotections, etc.Cloud legaland regulatoryexpertiseAbility to supporta global applicationCloud legaland regulatoryexpertise069

Other factors that finished high in importance included:Possessing expertise in the legal and regulatory aspects of cloud. Largecompanies in the U.S. rated this third in importance (knowledge of such issuesas country data privacy laws); European and Latin American firms rated itfourth.Being willing to provide contract provisions on service levels, data privacyprotections and other key performance expectations. This finished third inLatin America (rated important or very important by 84%) and third in Europe(71%). And it was fourth in the U.S. (68% said it was important or veryimportant).Adheringto the increasing number of technical standards for cloudcomputing. Some 68% of U.S., 66% of European, 78% of Latin American, and74% of Asia-Pacific companies said this was important or very important. Suchtechnical standards make it easier for customers to shift cloud applicationsfrom one public cloud vendor’s data center to another, as well as make it easierto share applications across a large company’s private cloud technologyinfrastructure.This tells us that price isn’t unimportant to companies contemplating usingapplications in public or private cloud settings – but that other considerationsmatter much, much more. Making sure their applications are available for useand not at greater risk of being hacked top the list of companies in all fourregions.070

What Companies Look for in Cloud Vendors070

041XII. Demographics andResearch Approach

Demographics and Research ApproachTCS conducted the study between August and December 2011 in four regions of theworld: the U.S., Europe, Asia-Pacific and Latin America. We focused solely on cloudapplications (which excluded such issues as cloud infrastructure such as hardware andmiddleware) – in order to shed deeper light than other studies had on those applications.Various definitions of cloud exist in the marketplace, which can make research on thistopic challenging. In the survey and our interviews, we defined cloud computingapplications as the business applications software used by a company’s businessfunctions (such as R&D, manufacturing, HR and finance) to accomplish their work – BUTonly those software applications that reside on a remote data center and are accessed viathe Internet (that is, “the cloud”). We told the research participants that by cloudapplications, we were not including the business applications software that companieshave operated for many years on the computers located on their premises (or “onpremises”applications, for short).In addition, we provided definitions for the following terms in order to clarify whatwe were asking them about in their organizations:Cloud applications software – We defined this as the business applications usedby business functions such as R&D, manufacturing, HR and finance to accomplish theirwork (a cloud-based sales force management application, a cloud-based payrollsystem, etc.). We told participants that we were not referring to the generic cloudbasedcorporate email/communication tools that are used across an entire company(such as Google Docs and Microsoft Office 365) and not by one or two functions. Public vs. private clouds – We defined public cloud applications as those that residein a remote data center that is owned by a third party. We defined private cloudapplications as those that reside in a remote data center that was owned by theircompany.Our inquiry centered on mostly large companies (defined as greater than $1 billionin revenue). In the U.S. and Europe (largely companies in Germany, UK, France), 88% of therespondents were companies with parent organizations of more than $1 billion. In Asia-Pacific, 75% of the companies were over $1 billion, while 49% of the 57 Latin Americancompanies were more than $1 billion.We wanted to understand not only the extent to which companies were using cloudapplications, but where they were using them in their businesses: which businessfunctions, and which activities within those functions. Thus we designed an extensive,16-question survey that was taken by senior business function and IT managers. In all 606managers completed every question in the survey.The largest proportion of respondents (71%) was from the U.S. and Europe. After wedesigned the survey questionnaire, it was fielded by ResearchNow, a survey firm witha panel of more than 6 million business professionals in 37 countries. ResearchNow droveresponses to the survey in September and October.073

Exhibit XII-1Survey Respondents from Regions of World30025027020015015812110050570U.S.EuropeAsia-PacificLatin AmericaNumber of RespondentsWe also conducted in-depth qualitative research at six companies around the world:CTB/McGraw-Hill, Commonwealth Bank of Australia, Dell, AOL Inc., a $5 billion consumerproducts company and a large telecommunications firm (which requested anonymity).Those interviews were conducted by telephone and lasted from 45 minutes to an houror more.We conducted extensive secondary research at the outset to determine the “white space”on the topic, where we found an absence of studies that went deep on how largecompanies across the world were using cloud applications. We wanted to identifycompanies that might share their cloud stories with us in our case study interviews. Wealso reviewed the findings with TCS’s experts on cloud computing to get their analysison the data.We analyzed the extensive data set from October to December 2011, comparing resultsfrom the four regions. To better understand what differentiated the companies thatreported greater benefits to date from their cloud applications, we compared those thatfinished in the top quartile of benefits with those in the bottom quartile. We founda number of big differences, which helped to drive what questions we asked in the casestudy interviews.074

The Benefits That Companies Have Gained from Cloud ApplicationsExhibit XII-2U.S.: Survey Respondents by ParentCompany Revenue$50B+19%$20B-50B19%$10B-20B15%$5B-10B14%$1B-5B23%$500M-$1B12%0% 5% 10% 15% 20% 25%Exhibit XII-3Europe: Size of SurveyRespondents (Revenue)$50B+$20B-50B$10B-20B$5B-10B$1B-5B$500M-$1B$100M-500M2%9%10%20%17%19%22%0% 10% 20% 30%075

Exhibit XII-4European Respondents by Country5%Germany31%32%UKFranceOther European country32%Exhibit XII-5Asia-Pacific Respondents by ParentCompany Revenue$50B+12%$20B-50B7%$10B-20B$5B-10B13%16%$1B-5B26%$500M-$1B20%$100M -500M5%0% 10% 20% 30%076

The Benefits That Companies Have Gained from Cloud ApplicationsExhibit XII-6Asia-Pacific Respondents by Country1%32%34%ChinaJapanAustraliaOther33%Exhibit XII-7Latin America Respondents byParent Company Annual Revenue$50B+$10B -20B$5B -10B$1B -5B$500M -$1B$100M -500M$50M -100M0% 10% 20% 30%077

Exhibit XII-8Latin American Respondents by Country33%33%BrazilMexicoArgentina33%Exhibit XII-9Latin America:Respondents by Company Size$50M -100M$100M -500M$500M -$1B$1B -5B18%18%16%11%$5B -10B$10B -20B$50B+5%5%28%0% 10% 20% 30%078

About Tata Consultancy Services Ltd (TCS)Tata Consultancy Services is an IT services, consulting and business solutions organizationthat delivers real results to global business, ensuring a level of certainty no other firm canmatch. TCS offers a consulting-led, integrated portfolio of IT and IT-enabled infrastructure,engineering and assurance services. This is delivered through its unique Global NetworkTMDelivery Model , recognized as the benchmark of excellence in software development. Apart of the Tata Group, India’s largest industrial conglomerate, TCS has a global footprintand is listed on the National Stock Exchange and Bombay Stock Exchange in India.For more information, visit us at www.tcs.com

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