AWS Cloud Enterprise Strategy Blog
Is Your Cloud Journey Stuck in the Value Gap?
Your cloud migration was off to a good start: you set out with a clear plan, used the “Six Rs” to segment your workloads by the different strategies of moving to the cloud, and have closely tracked core metrics like number of applications migrated. However, your stakeholders have become increasingly doubtful as to whether the move to the cloud is really bringing the advertised benefits or whether it’s just another one of IT’s shiny objects. After all, a major revolution of all things IT was also promised with client-server architectures, enterprise integration, the web, and service-oriented architectures—but these often resulted in additional complexity and painful budget overruns.
When executives seem unimpressed with your progress, which has often taken a lot of effort and investment from the team (“We finally got that Kubernetes operator sorted out”), it not only makes IT feel underappreciated but also hints at bigger issues.
The Value Gap
We’ve all been told that the cloud is about more than just technology. However, moving to the cloud still requires you to sort out quite a long list of technology topics. Account hierarchies and permissions have to be set, provisioning scripts written, virtual machines configured, golden images baked, and auto-scaling groups fine tuned. All this takes a good understanding of cloud architecture (we have a lot of training resources to help you with that) and will keep your teams busy for a while.
Migrating to the cloud quickly yields value: applications can become more resilient due to rapid and reliable provisioning of failover servers, and costs are reduced by optimizing machine instances thanks to increased transparency. You also gain a much more accurate application inventory, better monitoring, and tighter security.
Still, your business leaders might remain unimpressed. While it’s easy to dismiss the business as being unappreciative, there’s likely more going on. After an initial noticeable generation of business value, the paths of technical progress and business value have diverged. The perceived value, and likely the actual value, is leveling off despite the continued technical migration. You’ve fallen into the value gap:
The Value Gap: The value curve levels off despite technical progress
The value gap is reached when investment and progress on the technical front no longer appear to generate commensurate business value. Our team of enterprise strategists has observed numerous organizations enter this disappointing phase after an initial euphoria about cloud benefits. Unfortunately, in Enterprise IT a pain shared isn’t a pain halved. However, we can help you better understand the root cause. In fact, helping organizations over this hurdle to unlock the true potential of the cloud is a big part of what our team does.
Technical Change Requires Organizational Change
While explaining the reason for the value gap is fairly simple, translating it into actionable, real-life advice isn’t quite so easy. What happens in most cases is that the organizational change, though it’s on everyone’s mind, doesn’t progress at the same pace as the technical change:
Slow organizational changes limit the value generated by tech changes
Organizational changes include updating internal processes, adjusting personnel structures, defining new job roles and reward schemes, and breaking down existing silos. Such changes take time, so the slower uptake of the organizational change curve is expected. Perhaps you have already created a Cloud Center of Excellence, your tribes and squads practice “you build it, you run it,” your employees frequently discuss agility, and many of your teams sport product owners. Nevertheless, the value curve has flattened, putting a dark cloud over the once sunny skies of cloud transformation.
Organizational change is typically slower than technical change and will therefore hold back your value creation. When this happens, you’re in the value gap.
Organizational transformation has become a major topic these days, and rightfully so. Without it, the cloud won’t be able to deliver the value that it’s able and supposed to. For example, I occasionally still hear arguments that purchasing one large on-premises server is cheaper over three years than a corresponding cloud instance as calculated from the pricing sheet. If your IT organization makes financial comparisons without considering scaling up and down, hardware refreshes, backups, DR, and operational costs, for example, it will underestimate—and under-realize—the value of cloud.
COVID-19 served as a shocking reminder that scaling down your hardware and your expenses can be as important as scaling up. Lockdowns have forced many businesses to essentially halt operations while those with purchased on-premise hardware continue to foot IT infrastructure expenses matching 100 percent load. While no one can predict a pandemic, organizations that grasped the bigger picture were able to consider the overall value of the cloud, both in times of growth and under difficult conditions.
Aligning Organizational Change with Technical Change
Countless organizations have sent people to Agile training, held digital townhalls, offered ask-me-anythings with executives, and binge-watched TED talks. Biweekly project status and steering committee reports now contain words like “sprint,” “error budgets,” “shift left,” and “DevSecOps.” That’s good progress, you might think. But sadly, it isn’t. Your business won’t see the value curve go up as long as your organization keeps making decisions based on written status reports. That’s no better than a race driver who’s stopping at every corner to ask for the way. I haven’t seen those win a race.
Unfortunately, the list of changes you can make to your organization is almost as long as the list of cloud services you can utilize. You can create autonomous teams, become a data-driven organization, instill an agile mindset, and even try to instate a holacracy. However, these organizational changes often function only in conjunction with technical capabilities. For example: Agile methods aim to maximize the value delivered. But if you can’t measure the business value generated by a system or specific functionality, it is hard to prioritize and benefit from agility. Also, without a well-oiled software delivery pipeline, you might know what feature could bring the most value but won’t be able to deliver it.
Organizational changes often function only in conjunction with technical capabilities.
We therefore advise customers to consider three main actions to help overcome the value gap:
Tech-Org-Tech Enablement Cycle
The good news is that done well, technical evolution and organizational evolution can feed each other in a virtuous cycle:
A virtuous cycle of tech and organizational enablement
For example, gaining more transparency, perhaps through better metrics, allows better decision-making and optimizing for value generated. This in turn leads to a better ROI for IT investments, such as improving the software delivery pipeline. Lower friction in software delivery will give you even better transparency and faster feedback loops, renewing the beneficial cycle. To overcome the value gap, look for such an alignment of technical changes and organizational changes that support one another.
From IT Proxy Metrics to Business Metrics
Many cloud migrations start with concrete metrics, such as how many applications have been migrated to servers running in the cloud. Having concrete goals and measuring your progress are good practices. However, such metrics often are proxy metrics: they are a proxy for real success.
The number of servers running in any given location is only meaningful inside IT. The business will be interested in decreased operational costs, seamless scaling that deals with surges in customer demand, and solid security.
Most technical metrics are proxies for real success. They are easier to achieve but less meaningful for the business.
Therefore, while it’s good to begin with technical metrics at the start of the migration, switching to business-relevant metrics helps overcome the value gap. The catch of course is that business metrics are harder to achieve. Perhaps you built that great application but no customer noticed. The technical proxy metric (application delivery) is achieved but the business metrics (customer usage, customer satisfaction, revenue) are not.
When you use business metrics to gauge your cloud migration, you’re raising the bar. As with athletes, you’ll want to do this gradually. Setting an unrealistically high bar will lead to frustration rather than better results. So, you might incrementally progress from tech metrics like number of servers running in the cloud to a hybrid metric of software delivery velocity, then to business operational metrics like application usage, and finally to business value metrics like customer satisfaction.
From Broad to Deep
When starting a migration, you first need to lay a foundation of network architecture, identity and access management, security concepts, etc. To amortize this upfront investment, you might naturally be eager to move a large number of applications to this new platform. Benefits are apparent: you will likely see initial cost reduction, less operational toil, increased bandwidth, and better transparency. However, application deployment might not yet be automated, applications might not produce relevant metrics, and software delivery might still be cumbersome.
Therefore, it’s a good time to pay special attention to applications that have potential to generate additional business value and selectively push these into a higher state of maturity. Likely, you won’t have the resources to do this for all applications, so you need to pick the “right” ones. In the beginning this might be a crapshoot, as you have little data on the business value generated by individual applications. However, you will soon get better at it.
Updating applications can be a bit like playing the game Battleship. After a first few mostly random picks, you will get better at picking strategically.
Think about it like playing the game Battleship. In the beginning, you place a few exploratory probes somewhat randomly. Once you score a few hits, you develop a strategy to methodically probe for more insight. Who said there’s nothing to be learned about cloud strategy from childhood games?
Overcoming the Value Gap
Even the best cloud journeys are likely to hit a value gap. It’s like shifting (manual) gears: you need to depress the clutch for a moment while you change gears and get ready to accelerate further. While the clutch pedal is depressed, the car isn’t accelerating for a moment.
After realigning technical and organizational transformation, continuous improvement can set in
So, don’t be surprised when the business starts becoming less supportive after an initial euphoria. Realize that this is a signal for a needed realignment between the organization and IT. After you shift your transformation into second gear, a virtuous cycle between technical and organizational changes can propel your transformation forward.