How to Overcome Five Key Cloud Adoption Challenges

In the world of modern information technology (IT), cloud solutions reign supreme as a transformative powerhouse. The appeal of scalability and flexibility attracts organizations to the cloud, promising swifter market entry, enhanced resource accessibility, and stronger security measures. Moreover, the cloud offers an accelerated path toward the integration of artificial intelligence (AI), notably through generative artificial intelligence (Gen AI). With these compelling benefits on the horizon, companies are quickly moving closer to cloud migration.

A march to the cloud continues – but not without challenges

In The Hackett Group’s 2024 Key Issues Study, technology executives projected that their use of on-premises infrastructure will shrink considerably in 2024, with more workloads shifting to private, public and hybrid cloud infrastructures.

Study respondents also said they plan to accelerate initiatives to rationalize/modernize enterprise technology infrastructure in 2024 – second only to automating business processes among high-priority initiatives for the year.

Migration to cloud services, however, is not without its complexities and challenges. Transformation often takes more time and resources than projected. Many organizations find the cost is higher than they expected, while the benefits fall short.

Five cloud challenges

The Hackett Group^® has identified five key challenges that affect progress in optimizing the use of the cloud. Technology and business leaders must navigate these successfully to deliver the benefits they expect. These include financial and cultural challenges, as well as technical barriers.

• Higher unit economic costs compared to data centers
• Excessive reliance on PaaS capabilities that leads to cloud vendor lock-in
• (Mis)perceptions that a public cloud is less secure than a data center
• Lack of cloud technical and management skills
• Cultural aversion to new ways of working

1. Higher unit economic costs compared to data centers

The Hackett Group’s analysis of computing costs across multiple organizations finds that the unit price of cloud computing is typically higher than the unit price of data center computing. In addition, cloud computing involves ingress, egress, network, data storage and other fees, which can further spiral the cost of running in the cloud. In addition, AI models running in the cloud need a lot of resources, which typically translates into a larger cloud bill.

Companies commonly bring workloads back into their data centers once they realize the cloud is more expensive. Often, we find these organizations have simply cloned like-to-like services in the cloud and have not optimized their workloads for cloud deployments. While cloning like-to-like services is a quick way to move to the cloud, it does not take advantage of the flexibility of auto-scaling rightsized resources and cloud-native architecture, leading to excessive costs.

Although this IT strategy of rehosting is easier for organizations that are not experienced in cloud platforms, re-platforming and rearchitecting applications can result in greater financial benefits.

The current business landscape has elevated the pressure on IT executives to run efficiently and deliver value. This is reflected in shifting IT priorities for 2024. In The Hackett Group’s most recent Key Issues Study, chief information officers (CIOs) ranked improving cost-efficiency and productivity (No. 2), realizing value from investments in technology (No. 4) and accelerating time-to-value from technology-enabled investments (No. 9) among their top priorities for the year. Notably, they expressed low confidence in their ability to meet business expectations with respect to the latter.

What to do: Be purposeful in optimizing applications and workloads for cloud deployment

Companies that are purposeful in establishing efficient cloud operations tend to also see greater benefits in areas such as business agility, improved security and rapid innovation. The Hackett Group’s benchmarking research found that of the distinguishing factors of Digital World Class^® technology organizations – those that perform in the top quartile in both business value and operational excellence – is their advanced progress in optimizing applications in the cloud. They have simplified some of the complexity that leads to excessive IT costs and, in particular, their data center facilities and floor space costs per end user are 42% lower than peers. They accomplish this by reducing the need for data storage by optimizing the application portfolio and moving workloads to the cloud as appropriate.

There are well-established paths for improving the financial metrics associated with cloud migration and optimization. Most cloud solution vendors offer financial mechanisms – such as savings plans, reservations and spot instances – that can help lower cloud costs. A robust cloud financial management practice can help the organization take advantage of these financial mechanisms to reduce cloud spending. Additionally, organizations can analyze usage patterns leveraging AI-enabled cloud management platforms to scale resources dynamically, ensuring that infrastructure meets demand without over-provisioning, and optimize cloud resources continuously. Further, a mature cloud architecture function can guide an intelligent workload placement strategy driven by both business value and cost. Organizations should also rearchitect application platforms to auto-scale, where computer usage automatically adjusts to maintain steady, predictable performance at the lowest possible cost. Finally, establishing a cloud strategy can provide accounting benefits by replacing a capital expenditure-based model with a predictable operational expenditure model.

2. Excessive reliance on PaaS capabilities that leads to cloud vendor lock-in

Cloud platform-as-a-service (PaaS) capabilities offer great agility in building new, innovative solutions because they leverage ready-to-use frameworks and prebuilt modules. PaaS solutions also provide greater flexibility and ease of operation because enterprises don’t have to manage the underlying infrastructure or platform.

These benefits, however, come at a cost. PaaS offerings often have proprietary application programming interfaces (APIs) and services that are specific to the cloud provider, including an emerging set of large language models and Gen AI services. These APIs and services make it easy to build and deploy applications, automations, and AI solutions on the specific platform, but they may require significant rework and modification to migrate outside this cloud. For example, PaaS solutions often provide integrated data storage and database services. Over time, applications developed on a PaaS platform may become tightly coupled with the underlying infrastructure and configuration specific to that cloud vendor. These dependencies can make it difficult to move data to a different provider – making the migration process costly, complex, risky and time-consuming.

What to do: Embrace a multi-cloud strategy

CIOs and their teams must be mindful of these factors, and take a strategic approach to PaaS adoption to minimize the risk of cloud vendor lock-in. Many companies have adopted a multi-cloud strategy whereby they design applications to be compatible with multiple cloud providers to help avoid excessive vendor lock-in. This approach makes it easier to switch providers and reduce dependency on any single vendor. Another commonly used approach is leveraging open source or standardized technologies and services that are available across multiple cloud platforms. This reduces reliance on proprietary services and APIs.

3. (Mis)perceptions that a public cloud is less secure than a data center

Many executives believe data stored in a public cloud is less secure than data stored in a private data center. As a result, some companies are hesitant to put sensitive or proprietary data in public clouds. Certainly, there are valid concerns – and important regulatory considerations – but there is also a significant amount of misinformation circulating in the market.

Leading public cloud providers have dedicated teams of security experts and invest heavily in security measures and, increasingly, responsible AI practices. They tend to have multiple data centers across different continents and countries. This geographic distribution makes it easier to build redundancy and disaster recovery measures to protect against outages or data loss. They also invest in obtaining certifications and complying with various industry standards and regulations, which can simplify the compliance process for regulated industries such as health care or finance. And they offer a range of security services and features, including firewalls, DDoS protection, identity and access management, and encryption. These tools are often readily available and can be configured to an organization’s specific security needs. In short, it can be difficult and costly for an organization to match the physical security of a top-tier cloud service.

What to do: Focus on governance and accountability with cloud providers

IT leaders should be prepared to educate the organization about market capabilities to address any misperceptions. There is ample research demonstrating the security capabilities of cloud vendors and their compliance with evolving regulations and standards. For example, The Hackett Group’s research has revealed improved security via cloud adoption. While hosting in the public cloud can offer security advantages, it doesn’t absolve organizations from their own security responsibilities. Cloud security is a partnership between the cloud provider and organization. Security in the cloud or data center largely depends on how the infrastructure is designed, configured and managed. Migration to the cloud has democratized the provisioning of infrastructure services among development teams. Organizations must configure their cloud resources securely, manage access controls and regularly monitor for potential security threats. Without proper governance and policy, this can lead to misconfigurations that expose code in public repositories.

4. Lack of cloud technical and management skills

Insufficient internal cloud skills can slow the transformation journey. Organizations will need to add or develop capabilities in an array of areas such as cloud operations, application development, data science, security and risk management. In addition to technical skills, they also lack acumen in areas such as cloud financial management, cloud optimization and management of cloud service providers.

Aligning technology skills and talent with business needs is a perennial top 10 priority for technology executives – No. 6 in The Hackett Group’s 2024 Key Issues Study. But it is concerning that this is an area where executives have particularly low confidence in their ability to meet business expectations.

What to do: Upskill architects and administrators to manage migration to the cloud

With existing skills shortages and a competitive – and expensive – market for cloud talent, the most efficient way to address this gap will be to upskill existing IT staff in cloud competencies by investing in training programs. As organizations begin their migrations, cloud architects, administrators and DevOps engineers will be crucial for migrating existing workloads and developing new applications in the cloud. Cloud architecture is a critical role that should be developed internally because it defines the future direction and strategy of cloud usage in the organization, and must align with the overall business strategy.

Training the workforce on cloud-native development can vary in difficulty depending on several factors, including the existing skill set of the workforce, the complexity of cloud-native architecture and the resources available for training.

There are two primary types of training – both of which should play a part in building a skilled cloud services team:

• Passive training through online courses, workshops and training sessions that help cloud practitioners learn about cloud technologies.
• Active training through pair programming, where an IT employee is paired with a cloud expert and learns cloud development principles by doing. This type of training is more intensive and has a faster learning curve.

To realize value from a training investment, it is also important to establish and demonstrate commitment to cloud-native development. When there is a strong commitment to the transition, it is easier to allocate resources and time for training – even during periods of economic uncertainty.

What to do: Outsource to managed service providers that can manage and administer the cloud platform

While upskilling employees may be the best path forward for organizations that want to build an internal capability, outsourcing to managed service providers (MSPs) offers several advantages:

• Immediate access to experienced and skilled cloud platform administrators
  and automation engineers
• Proprietary AI-enabled platforms and tools to manage and monitor the cloud platform
• Continuous optimization of cloud resources
• FinOps practices and other process improvements
• Cloud governance and policy best practices

Many organizations outsource cloud administration and management to MSPs, and keep critical roles such as cloud architecture and cloud strategy in-house. This approach sidesteps the lengthy and arduous process of upskilling existing staff, allowing organizations to focus on core business activities without delay. Training an existing workforce to manage sophisticated cloud-native architectures can be daunting and resource-intensive. MSPs bring a level of expertise and experience that is hard to cultivate in-house in a short period. They are equipped with specialized knowledge that spans multiple technologies and industries, enabling them to handle complex cloud challenges effectively.

Outsourcing cloud services to MSPs allows organizations to strategically allocate their resources and focus on cloud-native development without being hampered by training limitations. This strategic partnership not only fills immediate skill gaps but also enhances the overall business agility, making it better positioned to adapt to new technological advancements and market demands.

5. Cultural aversion to new ways of working

IT leaders know that cloud transformation can breed business success. Yet very few are ready to claim that their organization has been entirely successful in orchestrating cloud transformation to meet business needs. For example, in the 2024 Key Issues Study, 23% of global business services executives said cloud-based applications fell short of expectations, and 37% of human resources executives said cloud-based human capital management applications have not met expectations.

Often, this is because organizations approach cloud transformation primarily as a technology challenge. They fail to consider or devote sufficient attention to the people side of change. This is significant because operating in the cloud requires shifting from a project mindset or methodology that constrains innovation to a product mindset that promotes it.

Changing ways of working is hard in any case – and cloud operations are no different. This is because it involves culture and thinking.

What to do: Embrace a product mindset

Adopting a product development culture is essential to accelerating the cloud transformation journey. A product mindset is deeply rooted in the ability to develop and test minimum valuable products quickly and then enhance them over time. Enabling this is the cloud’s greatest value proposition – but it only delivers when the organization understands that it is managing a growing, evolving product, rather than a one-time project.

The transformation from project-to-product mindset typically takes several years – and it doesn’t happen naturally. Often, organizations deploy tiger teams – also known as rapid response teams or task forces – to instill the necessary product development practices and principles within the organization. The rapid and focused nature of tiger teams makes them well-suited for catalyzing change and building momentum toward a product-oriented culture.

Moving to a product mindset also requires an intentional plan and investment in orchestrating change, employing principles of organizational change management. To advance this type of change, it’s crucial to establish clear communication channels for articulating the vision, benefits, and strategic steps toward this new mindset to ensure every stakeholder understands and is aligned with the direction. Additionally, providing ongoing training and support helps teams acquire the necessary skills and adapt to new roles or processes, fostering a culture of continuous learning and improvement.

Don’t underestimate the effort required. If you don’t do this well, all the steps taken to address the previous four challenges will not matter.

Mobilize your organization to optimize cloud operations

Meeting business expectations for the cloud will take concerted effort and focus beyond just mastering the technology. Moreover, this must be a well-coordinated effort – and not individual initiatives – to address each challenge independently.

If your company has aspirations to optimize operations in the cloud, it should focus on ensuring strong oversight. This includes:

• A cloud operations team that works closely with IT leadership to oversee all aspects
  of cloud transformation
• A cloud center of excellence
• Cloud governance with clear policies around the use and development of applications, infrastructure, and AI for the cloud, with the goals of standardizing operations and improving business value
• A process for monitoring the use of policies and updating them as needs change

As noted earlier, evolving ways of working and moving the organization toward a product mindset is at the center of this transformation. Accordingly, it is critical to bring together all key stakeholders – product owners, technical architects, security, risk, finance and more – to make sure all viewpoints are heard in setting strategy and that the organization is moving together toward one goal.

With the right approach and focus, your organization won’t just begin to realize greater value from investments in moving to cloud platforms – it can take critical steps toward delivering Digital World Class^® technology performance and all the benefits that come from achieving it.

Transform your technology function capabilities

Backed by our unparalleled benchmarking data and best practices repository, as well as experience across the full transformation life cycle, The Hackett Group^® is ready to support:

• Performance benchmarking and best practices
• Digital transformation strategy, smart automation and analytics
• Technology organization and global business services delivery model design, implementation, and optimization
• Talent management, skills and competencies, role definition, and career pathing
• Enterprise performance management and analytics
• Technology road map, cloud migration and modern architecture
• Master data management and architecture
• Transformation management office, change management and communications implementation
• Selling, general and administrative cost optimization

Download the report to learn more about how swifter market entry, enhanced resource accessibility and stronger security are accelerating movement to the cloud.