In today’s digital world, businesses are facing increasing pressure to accelerate their pace of change, lower IT or cloud costs, and drive new growth opportunities. In order to succeed in this challenging environment, enterprises need to have a clear strategy for how they will invest their time and money in technology projects.
In this blog post, we will dive deep into a recent 184-page McKinsey study, as to where organizations are making the most investments and deriving the highest ROI on technology investments. Specifically, we will identify the top 2 categories of IT investments and the benefits derived.
One of the best ways to lower cloud costs is with Applied AI (Artificial Intelligence) projects. Applied AI continues to lead the pack as enterprise investment has grown from $66B in 2018 to $165 billion in 2021. Mainly because of the direct impact on corporate financials. (High ROI).
Broadly speaking, AI uses intelligent applications to solve classification, prediction, and control problems. The top ways to leverage AI, are with projects focused on 3 essential parts of an organization’s operations. Companies, in all industries, are applying AI to their data too:
- Automate activities
- Expand capabilities
- Make better decisions
Source: McKinsey Technology Trends Outlook 2022
Product development and service operations are the two business functions that have seen the most benefits from applied AI. In addition, applied AI is seeing an explosion of innovation which significantly makes it easier and more affordable for implementation.
The fiscal impact for organizations adopting AI is significant. Per the Mckinsey study:
- 79% of reported a decrease in operating COSTs via AI adoption.
- 67% of respondents reported a REVENUE increase via AI adoption.
- 27% of respondents reported 5% of EBIT attributable to AI.
AI is becoming much more affordable and easier to implement due to all the innovations in the sector. Leaders need to pay attention to this trend because of the immediate financial impact on the organization.
The benefits of applying AI to the operations noted above are very tangible and quantifiable. Making the ROI on these investments very compelling. Automating activities and making better decisions have an immediate impact on an organization’s cost structure. It is critical you work with a top AWS partner or top Azure partner, with specific expertise in AI.
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Cloud and Edge computing came in second, with regard to growth in enterprise IT spending and ROI. Enterprise spending in this category grew from just $88B in 2018 to $136B in 2021. (54% growth). Increasingly, enterprises are demanding computational and data resources at network edge nodes, near the end user. In doing so, enterprises extend the cloud’s speed and quality, thereby increasing productivity, creating business value, and accelerating innovation.
Source: McKinsey Technology Trends Outlook 2022
The fiscal impact on an organization is quite staggering. McKinsey estimates more than $1 trillion in EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) improvement across Fortune 500 companies alone. The operational benefits from these investments are as follows:
- Increased productivity.
- Velocity in IT delivery.
- Risk Reduction.
- Hyper-scalability of workloads during uncertain demand environments.
The benefits noted above are not only very quantifiable cost savings but offer a quick return on investment due to the immediacy of the benefits being realized. In addition, the timeframe to execute cloud and edge projects is shrinking due to the innovations to simplify adoption. As a result of the high ROI on these types of IT investments, spending in these categories continues to grow significantly.
When reviewing your organization’s operations, be mindful of where the benefits above can be realized with a proper cloud and edge computing project. McKinsey highlighted the top 5 operational initiatives to help drive focus:
- Need for near real-time insights.
- Compliance with data residency and privacy regulations.
- Uninterrupted and reliable operations.
- Security of centralized environments.
- Move away from massive infrastructure investments.
Lastly, here are a few of the key underlying technological components needed and will benefit to support the trend above.
- Data Centers. (Public, Private, Hybrid)
- Edge Devices: Local servers or end-user devices.
- Network Infrastructure.
- IoT: low-cost, real-time, sensor-driven systems.
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In summary, AI, cloud, and edge computing projects are showing the highest ROI. Fast time to value, meaningful impact on operational cost structure, quantifiable benefits, and declining cost of adoption all results in a high ROI. We hope you found this helpful. Kazzcade can assist in finding the top AWS or Azure partner for cloud migrations. (No commitment. No charge). Below you can find the 184-page McKinsey report in its entirety.
Source: McKinsey 2022 Enterprise Tech Trends. https://www.mckinsey.com/capabilities/mckinsey-digital/our-insights/the-top-trends-in-tech#Report