Is your business crawling when it could be sprinting?
Transform and adapt with lessons from cloud-built businesses.
This joint research between AWS and the IBM Institute for Business Value delivers first-hand advice from IT leaders on how to accelerate digital transformation by adopting best practices from cloud-born businesses.
Digital transformation is essential to maintain business resilience, deliver for customers, and stay competitive in the market. But differences in architecture, workloads, and resources make the journey unique for every organization. In this report, we share advice and best practices from IT leaders who have led digital transformation initiatives across both traditional enterprises and born-in-the-cloud organizations. Learn from their examples and discover what you can do to expedite your own path to cloud maturity.
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Accelerating digital transformation: New perspective for IT leaders
In the ongoing—and often challenging—pursuit of digital transformation, traditional enterprises can re-energize their efforts with a fresh perspective. And where better to look for inspiration than their nimble, cloud-native colleagues?
Understanding the philosophies and practices of these quick-moving, born-in-the-cloud companies can help leaders of legacy businesses transition from approaches that worked well in the past to modern tactics that can accelerate their technology adoption and support successful outcomes. To give enterprise executives first-hand insight into cloud native businesses, the IBM Institute for Business Value (IBV) partnered with Amazon Web Services (AWS) and Oxford Economics on exclusive, qualitative research.
The overarching maxim:
Cloud native firms approach technology not as an enabler of business strategy, but as a central part of that strategy itself, integral to business direction and opportunity.
Through a series of one-on-one interviews with hand-selected tech leaders who have rich experience at traditional and cloud-created enterprises, an unmistakable set of lessons has emerged, spanning culture, strategy, and execution.
“Business strategy and IT strategy must fuel each other,” said Gregor Hohpe, Enterprise Strategist at AWS, and formerly Chief Architect at international finance firm Allianz, Smart Nation Fellow with the Government of Singapore, and Technical Director in the Office of the CTO at Google.
“At legacy enterprises, their pace, momentum, and trajectory are very different than digital natives,” noted Ravi Simhambhatla, Chief Digital Officer at Avis Budget Group, as well as former executive at United Airlines, Aer Lingus, and Virgin America. “Enterprises are crawling, while cloud native businesses are sprinting.” Mathias Schlecht, CEO of energy data start-up Biota, and who previously led tech efforts at energy giants Baker Hughes and GE, observed, “If you don’t work at pace, with open systems, you will be left behind.”
Discussion questions:
What cloud native practices are worth emulating?
Which long-standing enterprise advantages should be preserved?
What legacy processes or technologies could be hindering your innovation?
Changing the leadership mindset: From stability to disruption
Established, successful organizations may be locked into thinking they have a system that works, and that can become their limitation. “In the legacy world, leadership is rewarded for maintaining stability and performance,” said Simhambhatla. “For digital natives, they get rewarded for disrupting and innovating.”
Insights from the 2022 AWS C-Suite Report: Cloud-Enabled Growth show that the executive frame of mind is starting to shift, however, favoring innovation ahead of stability. When asked to rank their top business priorities, 52% of executives selected growth-focused priorities, including increasing revenue, expanding market share, and/or reinventing the business. Even so, 38% chose to prioritize stability-focused objectives, such as defending market share and reducing costs.
“We are seeing more C-suites and boards of directors changing how they reward leaders and their teams…It’s about rewarding innovators for breaking glass.”
Ravi Simhambhatla, Chief Digital Officer, Avis Budget Group
Executives’ top business priorities
38% Stability-focused
Improving margins
Reducing costs
Defending market share
52% Growth-focused
Growing revenue
Growing market share
Reinventing business models
Source: 2022 AWS C-Suite Report: Cloud-Enabled Growth, a survey of more than 1,500 C-level executives in non-technical roles
Refreshing the mentality at legacy firms requires rethinking incentives. Simhambhatla noted: “We are seeing more C-suites and boards of directors changing how they reward leaders and their teams so that they lean toward adoption of new technologies. It’s about rewarding innovators for breaking glass.”
Enterprises need to recognize that the cloud native mindset impacts varied practices, from decision-making to cost assessments to collaboration. This includes a heightened willingness for team members to share or cede control in service of flexibility and speed.
“If making a decision takes you two months, the opportunity cost of not having moved in that time is enormous.”
Gregor Hohpe, Enterprise Strategist, AWS
Buy or build?
When planning for innovation, leaders of cloud native organizations have the freedom to start from scratch with their infrastructure. Their typical approach is to keep it as small as possible, build as little as possible, and borrow as much as they can from outside providers.
Not everything about the cloud native tech infrastructure is simpler. But that too has its advantages. “The traditional question has always been, do I buy versus build?” said Hohpe. “With the cloud and software as a service, that takes on a whole different character. It’s really a buy and build model. The transformation exercise isn’t about resetting the existing dials; it’s about understanding that you’re maneuvering a completely different system.”
Enterprise leaders also need to recognize the value of infrastructure changes beyond just the cost. “CFOs of legacy companies say, ‘I want to save money.’ But that doesn’t drive real value,” said Simhambhatla. “The benefit for new tech should not just be cost. If you’re going to move an app from your data center to the cloud, it should enable more teams within your organization, better customer engagement, new possibilities.”
“CFOs of legacy companies say, ‘I want to save money.’ But that doesn’t drive real value. The benefit for new tech should not just be cost.”
Ravi Simhambhatla, Chief Digital Officer, Avis Budget Group
Loosening operational processes: Friction, experimentation, and organized chaos
As with their tech infrastructure, cloud native organizations tend toward leaner, looser processes — and yet, despite the less systematic approach, they get a lot done, quickly.
”Digitally native companies have less friction,” said Hohpe, citing excess inventory, long cycle times, and over-utilized employees who are unavailable for decision-making as examples of barriers that slow down progress. “Friction is the enemy— people have ideas but you miss out on the opportunity because of the time it takes going through the system.”
“Don’t underestimate the value of small but continuous innovation.”
Gregor Hohpe, Enterprise Strategist, AWS
Hohpe’s advice for legacy organizations is twofold: “The long-term goal is to simplify the machine. The short-term goal is to use lubricants. Understand the value of short cycle times. If you have a faster cycle time, you can make smaller changes, smaller experiments. Don’t underestimate the value of small but continuous innovation.”
The recent emergence of exponential technologies and the acceleration of digitization, combined with rising stakeholder expectations, have created an urgent imperative for organizations to embrace open innovation. In fact, research showed that organizations embracing open innovation had a 59% higher rate of revenue growth compared to those that don’t.
Organizations embracing open innovation had a 59% higher rate of revenue growth than those that don’t
Action guide for enterprise leaders
Transformation is happening on the business side and on the tech side. Too often, those efforts are siloed. Cloud native organizations reveal the opportunity to meld the two together for strategic gain.
The cloud native playbook can’t simply be copied, but it’s wise to study what’s worth borrowing. When it comes to embracing change, “legacy enterprises love to talk about it; cloud native organizations actually just do it,” said Simhambhatla. His advice to colleagues and peers: “Be absolutely fearless.”
“This is a beautiful time for the CIO to become the thread that binds the organization together.”
Ravi Simhambhatla, Chief Digital Officer, Avis Budget Group
How can these insights be applied to your organization? Here’s a set of questions that all organizations, whatever their stage, history, or maturity, should be asking themselves:
Is technology an integral part of your business strategy?
- How can your business team and technology team work together and align better?
- How are you responding to the economics of speed?
- What opportunities might you be missing?
What are you doing to make your tech infrastructure more scalable, more flexible, more modern?
- What third-party tech tools and cloud capabilities are you considering?
- How might the cloud help you serve customers and access data in new ways?
- How might new tech unleash new opportunities, for your team, for your customers, and for your business?
Does your organization’s leadership mindset prioritize disruption or stability?
- How can your decision-making process be quicker?
- What are you doing to teach your business leaders about the evolving tech landscape (and vice versa)?
- What tough but necessary changes have you been avoiding?
How are you working to diminish the friction in your operational processes?
- Are you fully embracing experimentation and the concept of minimum viable products
- Do you have a system for constant incremental changes in implementation?
- Are your ecosystem partners pushing you toward newer technology or pulling you back to old technology?
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