Saurabh Gupta — President, HFS Research[00:21]
Hi, everyone. Welcome to today’s edition of HFS Unfiltered. My name is Saurabh, and I’ll be your host today. We recently released research that we did in partnership with EY, where we reached out to a number of enterprise executives across the globe. And we found that about 70% of them look at cloud as a very strategic initiative. But what was quite eye-opening was that only about 30% of them said they’re getting the benefits that they envisaged from cloud, and I think I’ve got two gentlemen who can help me unpack this a little better, because I think it’s quite shocking and quite eye-opening at the same time. But I wanted to dig deeper into this in today’s videocast. So, Raghu and Tom, I couldn’t have chosen two better people to ask some tough questions. If you don’t mind introducing yourself to our audience. Raghu, do you want to go first?
Raghu Rajaram — Partner, Cloud Consulting Leader, EY[01:11]
Absolutely, Saurabh and Tom at HFS, thanks for having me here. My name is Raghu Rajaram. I’m a cloud enthusiast. I am part of EY. I’m a partner with EY. I’ve been working with EY for the last 12-plus years now, and I lead cloud consulting for EY. Over to Tom.
Tom Reuner — Executive Research Leader, IT Services, HFS Research[01:48]
Thanks, Raghu. Delighted to have you on. Tom Reuner. I lead our IT services practice, and most of my time is spent trying to figure out the topic at hand, Cloud Native Transformation — what it means, what it doesn’t mean to an organization, all the way to quality assurance, quality engineering, all too often forgotten. But today I’m delighted to discuss exactly that, Cloud Native Transformation. Saurabh.
Saurabh Gupta — President, HFS Research[02:09]
Yeah, so I wanted to start with you, Raghu. Are you experiencing the same in the field as you’re dealing with clients day in and day out — that only a third, or very few, are getting the benefits that they envisaged out of cloud? What are you hearing in the market? Why is this? If yes, why is that happening?
Raghu Rajaram — Partner, Cloud Consulting Leader, EY[02:32]
Yeah, it’s very pertinent, Saurabh, it’s very true. It’s a very similar message that we are getting, working with our clients day in, day out. There are several reasons for this, but by the way, compared to what it was before to what it is now, you’ve seen significant progress. So, one, it definitely has become a boardroom discussion. Certain things that we always wanted to get across, I think the progress is made, so I’m not going to completely discount that. But regardless of that, there are some significant challenges ahead of us, and in front of our clients as well. And as you stated correctly, there are a number of things. One is, fundamentally, there are a lot of conversations, but there’s very little action. In terms of strategizing for it forever, analyzing it forever — but quick, experimentation-based action needs to happen, which we see a little bit of a lag, inertia. A tremendous amount of time is spent on business buy-in with the legacy apps that need to be migrated into the cloud, a lot of debates and discussions in terms of, hey, is this a disposition or is it a modernization? So a lot of time is spent even before a single workload actually gets into the cloud. Yes, absolutely, strategy is critical. Planning is extremely critical, but we need to think about it in an agile fashion. So that is one where we see a tremendous amount of inertia felt on the ground. And poor planning also causes a lot of pain in the overall process, the tech strategy and the business transformation. And what we’re also seeing is essentially, it’s still thought of as — part of the organization thinks that, hey, this is just an update to your technology strategy. There’s nothing I, as a business, am gaining out of it, so why should I be part of this? Or, what do you guys expect out of this and how can I be on board, part of this? So it’s still seen as a technology exercise rather than a business exercise, or a business value outcome discussion. So that’s something that prolongs that conversation. And even for those who actually adopt and move forward — now comes the 30%, or probably half of that; not the 30% who saw the benefits, but let’s say half of them actually progress towards cloud — there is a tremendous amount of mistakes being made along the way, right from the tech stack discussions, because today every single architecture decision and engineering decision has a cost consequence. In cloud particularly, because it’s OpEx-based, it’s a lot of loss which doesn’t have a lot of causality, and we can’t trace out the causality; it happens over a period of time. So that’s something folks are really worried about. Even if they cross that bridge, then comes adoption. The majority of the deals that we see with the hyperscalers are signed based on consumption, consumption-based discounts, but what’s happening in the field is the adoption is not happening. So the companies at the CIO level are risking a whole lot when they sign some significant large contracts. Then you’re stepping into some easy workloads, and then you get into mainframe space assets and tough workloads where understanding of what exists is not transparent. So there’s a lot to untangle.
Saurabh Gupta — President, HFS Research[06:16]
There, Raghu. And I think, Tom, you’ve been talking about how we should talk less about cloud migration and more about cloud native transformation. As you hear what Raghu was saying, help us understand what you mean by cloud native. What’s the difference?
Tom Reuner — Executive Research Leader, IT Services, HFS Research[06:46]
No, and I think Raghu made great points. Fundamentally, if you boil it down to the basics, where organizations struggle is aligning technology with business objectives — but actually with the latter, the business objectives. They’re often left to their own devices. Advancing suppliers have done a good job explaining what the future state for your organization is, what you’re working towards. And then, if you go to the next step, cloud should be about working differently. With that, we are literally around target operating model. And one of the organizations we interviewed for that study, ITV, and Matt O’Shea, who heads up the technology division, he phrased it quite aptly. He said the real value of cloud is only being realized when you transform the operating model. So think about things like agile, other methodologies, purely from an IT point of view, but then also going to the next step, if you have a higher risk appetite, all the way to looking for new sources of revenue, even going all the way up to different kinds of business models. But if you don’t articulate what that is, many organizations will continue to struggle. So it has to come back to aligning technology to business objectives, but organizations need more help on that sort of thing.
Saurabh Gupta — President, HFS Research[07:59]
And so, Raghu, back to you. How are you helping organizations, as EY? Because one of the differences that I see, at least outside in, between EY and a system integrator is EY should bring in both a business and a technology perspective. You’re just not a system integrator. So how are you addressing this, that both you and Tom have been articulating — this technology and business divide in driving cloud transformation?
Raghu Rajaram — Partner, Cloud Consulting Leader, EY[08:17]
Exactly. So, one, we are starting with the brand and the name. We’re calling this a cloud-driven business transformation. And we were very clear in terms of not calling this a technology transformation. In any organization, when we are embarking on these programs, we’ve been very crystal clear with all the levels above: it’s a cloud-driven business transformation. And Tom touched on it, which is, we are aligning the business objectives with the technology advancements. So every single technology advancement — and we called it a golden thread — every technology advancement has a business value, and it has a customer value. And we tie them together in a thread called the golden thread. So every single thing that you do on the technology needs to be aligned with the business outcome, and that business outcome needs to have a customer outcome. And I say customer outcome, the end customer outcome; then there are the business and the financial outcome, and then that lines up to the technology outcome. So these three, we’re keeping strictly close to each other, and we call that the golden thread. And we are also working with the architecture organizations of these large firms in adopting cloud native. And I say cloud native, it’s more about embracing an end-to-end, service-led business architecture, which is powered by technology enablement. So think about this broadly as parts and pieces of a broader outcome, which is broken into chunks that we can group together and choreograph — choreograph the outcome that we want to achieve. That’s the way we are approaching this. And as I said before, we’re also thinking in terms of how do we move from continuing to debate about things to actually stepping into action, and more of a — from what folks traditionally used to call the cloud-first strategy to much more a right-cloud or a smart-cloud strategy. With a well-defined strategy in place, an integrated approach that touches every part of the organization — and Tom said it very well — to be successful in a cloud journey, in a transformation journey, you need to have a cross-functional team, and this cross-functional team all have to be aware of it and need to be trained well enough for us to make any advancement. So it’s all about creating those building blocks of composable architecture which can be brought together to get that outcome. And that needs to happen on a consistent basis, and the pace of developing organizational talent also needs to be aligned to that. We need to continue to nurture that continuous learning exercise within the organization, because the way I see it, our hyperscalers are moving really fast. It’s like, you can’t stand on a treadmill. You’ve got to be at the same pace. The treadmill is actually moving. If the clients are not able to keep up to the treadmill, they’re going to slip and fall, and it’s our responsibility as the partners for our clients to help them keep that pace. So that’s the way I would put it.
Saurabh Gupta — President, HFS Research[11:46]
Yeah, no, I really like both the golden thread and the treadmill examples, Raghu, because I think that drives home the point. But Tom, yes, it’s disappointing that only a third of enterprises are getting value. But there is a third who is getting value. As you were doing this research — some of the points that Raghu was making, do those resonate with the research you were doing? What were these people doing differently than the majority of the other organizations that led them to believe that we are achieving something?
Tom Reuner — Executive Research Leader, IT Services, HFS Research[12:32]
No, thanks, Saurabh, and Raghu made a lot of great points. Fundamentally, we have to drive the discussion — cloud has to become a business discussion. With that, the key point is to drive and enable stakeholder management within the organization, and, as Raghu alluded to it, that’s almost about change management. That’s the hard bit. How do you drive a culture in general, especially our IT and our business? Two different cultures and worlds are colliding. It’s easier to say than not; it’s just about alignment, but to drive that change, that’s also so hard and difficult. And it’s counterintuitive, because I think what we said there might be quite negative about certain aspects, but we’re seeing the majority of cloud transformation already funded by the business. So there’s progress, as Raghu alluded to it. But then again, the final piece of this is about change management and that clarity — often the lack of clarity of the business objectives, of the target operating model. And here we need more. At times, we’re just doing research on industry cloud. Could industry cloud be almost a preconfigured operating model? But then life’s more complicated. So if anything, we need more, we have to reframe much of the cloud discussion. And that’s where, with this research, we put the foundation in, but we have to go deeper. So we look forward to more collaboration with EY on that.
Saurabh Gupta — President, HFS Research[13:57]
Yeah. So let me ask you this. I think there is a very interesting relationship between cloud and GenAI. You cannot do GenAI without cloud, but can GenAI help you in a lot of these cloud transformations? Where are you on this whole impact-of-GenAI-on-cloud and impact-of-cloud-on-GenAI conversation?
Raghu Rajaram — Partner, Cloud Consulting Leader, EY[14:30]
Yeah, it’s a very relevant conversation. In fact, I’m a little jealous of GenAI, because prior to GenAI, the conversation was always cloud, guys. Now, cloud has moved aside. They’re like, okay, cloud, just move aside a little bit, let me talk to this GenAI guy. GenAI, the opportunity for us in GenAI is awesome where we are, and it is not a hype, and it’s already showing value for a number of our clients, but they’re still scratching the surface, and I’ll tell you why. GenAI — cloud provides incredible, significant computing power and a wealth of data when you want the GenAI models to work well and make smarter decisions. So that’s where it really helps. It provides the flexibility and the speed to experiment with new products. That’s another aspect of it. I would just say it’s that hidden ace that can give the business a very competitive edge, particularly in using the power of cloud. Now, while that’s happening, a lot of the actual stuff that cloud is promoting GenAI on is fundamentally in terms of automating tasks, enhancing security, optimizing the cloud, and creating some tailored content. And it’s becoming the backbone — and it was a backbone of many of those enterprises, as cloud for enterprises — but still, from GenAI, it’s complementary, significantly complementary in terms of how you can take it to the next level. So that’s what we’re finding. But still, what we’re finding is, just as in cloud, while discussing the cloud — are we using cloud native technologies, or are we still talking about lift and shift and stuff? — even in GenAI today, we’re scratching the surface around optimizing, improving our SDLC lifecycle processes. This is where the majority of the clients are, and experimenting with it. Some of the product companies and software companies have really taken advantage of it, and there we can see some good results, but very large firms, let’s say financial services firms or health firms or retailers, they’re still on ‘how can GenAI help me in this?’, and they’re experimenting through it, but it’s still in the stage of how can I improve my developer productivity, how can I test some new use cases? That’s where we are. So cloud helps a lot in any of these GenAI conversations, and it’s very real, but we are still yet to see the full power of GenAI with the majority of the clients. And I think, prior to GenAI coming in, the cloud was slowing down because of the market conditions; with GenAI coming in, I could see a whole lot of cloud consumption right now. It’s back on track.
Saurabh Gupta — President, HFS Research[17:20]
Yeah, so it’s huge potential, but still early days and too early to celebrate success. So, I know we’re running out of time, and this has been a fascinating conversation, but I didn’t want to let both of you go without asking this question. And maybe Tom, I’ll start with you first. If there was one wish that you had that could come true — and I’m not talking about a personal wish; let’s talk about cloud and related stuff — what would that be?
Tom Reuner — Executive Research Leader, IT Services, HFS Research[17:55]
I think, close to my heart, and just building on the whole conversation we had, we need a realistic sense of where we are. I don’t know if we’ve conveyed what we’re seeing in the market; we’re not being negative. We’re trying to play back both best practices, good things we’ve seen, but also those things that don’t work. And we need more honesty. And just building on what Raghu said, while there’s a lot of excitement and hope for GenAI, we have to acknowledge we haven’t even figured cloud out, and progressing this GenAI is cloud, data, and AI. So, to cut a long-winded answer short, a sense more of realism, because only with realism can we really help organizations on the transformation, to finally move the transformation needle.
Raghu Rajaram — Partner, Cloud Consulting Leader, EY[18:10]
Yeah. No, I would like to stress this point. If there is one thing that we have to choose that would have the biggest impact on what we want to really achieve from an outcomes-in-cloud perspective for clients, primarily it’s about — I wish organizations really saw the value and just transformed their business technology operating model. I call that specifically not just the tech operating model or the business operating model, but the business technology operating model. We did research as EY, like a human-centered research, and that indicated that organizations need to move beyond the traditional operating models that they have traditionally done into experimentation-based, or adopting a product and agile product business technology operating model. This results — and it’s proven — it gives you a tremendous amount of success in their transformation. So I wish everybody thought in terms of not large monolithic transformations, but breaking it down in chunks, thinking in a much more agile fashion and much more product-centric thinking, or business technology operating model.
Saurabh Gupta — President, HFS Research[19:26]
Yeah, no, this has been fantastic. Thank you both for taking the time. I think I learned a lot. I think my takeaway is that there are a huge amount of challenges facing our enterprises. It’s not just — we keep talking about technology debt, but what this conversation made me realize is that there is a technology debt for sure, but there are other debts that we’re dealing with. There’s a skills debt that Raghu, you pointed out. There’s a process debt, or a business debt, in terms of how we are managing our processes. There’s a data debt. And there’s probably a cultural debt as well, and we have to solve through all of them. And to Raghu’s point, it’s going to be very hard to think that we can solve all of these problems in one go. We have to keep experimenting, keep at it in small incremental steps, and keep showing progress. But it’s been a fascinating conversation. I hope people who are tuning in learned something from it; at least I did. And I would shamelessly plug our research as well — go and read our research. I think it’s fascinating. It starts with that eye-popping number of only a third realizing the value, but I think there are some good lessons in that it’s not just a technology conversation. So thanks, everyone. Thanks, Raghu. Thanks, Tom, for sharing your insights. This was great.
Raghu Rajaram — Partner, Cloud Consulting Leader, EY[21:05]
Anytime. Super, good to talk to you.
