Chemical Companies’ Cloud Strategies: Current Adoption and …€¦ · • Cloud computing benefits, concerns and complexity • The impact of cloud computing on IT organizations

Chemical Companies’ Cloud Strategies: Current Adoption and Future Plans

Cloud computing has grown from being a niche IT sourcing strategy, adopted by a small percentage of organizations, to becoming a core element in the digital strategies of leading corporations. No longer just the choice of a few, public cloud services are projected to become a $179 billion market in 2015, according to Gartner.1 This represents an increase of 17 percent over 2014. Cloud computing has been adopted by businesses globally, across all industries, both by IT departments as well as lines of business within organizations.

So what is the status of the cloud within the chemical industry?

To better understand the state of cloud adoption within the chemical industry, Accenture and ChemITC recently surveyed 30 executives from 26 chemical companies about their current and planned use of cloud services. In this report, we will detail the findings from several areas:

• Types of cloud services being used and for which functions within the company

• Cloud computing benefits, concerns and complexity

• The impact of cloud computing on IT organizations

• View on cloud adoption

MethodologyAccenture and the ChemItC conducted an online survey of 30 C-level and top management executives in the chemicals industry. the survey was fielded in November 2014 and included respondents from 26 different petrochemicals, paints and coatings, industrial gases, agrochemicals, fertilizers, inorganics, plastic resins, synthetic rubber, film and fiber companies in the United States. the companies that these executives represented range in revenue between less than $500 million to greater than $20 billion.

2 | Chemical Companies’ Cloud Strategies: Current Adoption and Future Plans

3

Key findings

5Potential benefits that initially attracted those surveyed to cloud services:

6Approaches to readying an organization for cloud computing varies by company:

4Some chemical companies have been slow to achieve benefits at scale, and have found cloud has increased complexity. Top areas where respondents reported increased complexity:

Cloud computing has grown from being a niche IT sourcing strategy, adopted by a small percentage of organizations, to becoming a core element in the digital strategies of leading corporations.

Copyright © 2014 Accenture All rights reserved.

Accenture, its logo, and High Performance Delivered are trademarks of Accenture.

Chemical Companies’ Cloud Strategies: Current Adoption and Future Plans

To better understand the state of cloud adoption within the chemical industry, Accenture and ChemITC recently surveyed chemical company executives in the U.S. about their current and planned use of cloud services. Among the key findings:

For more informationTo read the full report, visit www.accenture.com/chemicals.

MethodologyAccenture and the ChemITC conducted an online survey of 30 C-level and top management executives in the chemicals industry. The survey was fielded in November 2014 and included respondents from 26 different petrochemicals, paints and coatings, industrial gases, agrochemicals, fertilizers, inorganics, plastic resins, synthetic rubber, film and fiber companies in the United States. The companies that these executives represented range in revenue between less than $500 million to greater than $20 billion.

92%SaaS

42%

Sales

HR

Use in new product development

Use in HR and IT>80%

70%

Security60%

Data and Information Management

56%

83%

48%IaaS

Privacy68%

IT cost reduction68%

IT infrastructure cost reduction

76%

Ability to better deploy skilled IT resources

60%Internal cloud

training programs in place

68%

Training to develop cloud-based

organizational core competencies

41%

Hiring externally to speed adoption

41%Leveraging external

cloud training programs

23%

The results show an eagerness to move beyond the early adoption stage and begin to shift key enterprise applications to the cloud. In any step-change in business or technology, early movers stand to reap the lion’s share of the benefits. It is time for chemical companies to embrace cloud computing, as part of a broader digital strategy, so that when the game changes, it turns in their favor.

2Across the majority of the chemical companies surveyed, SaaS has a large footprint (92 percent). Eighty-three percent use SaaS for HR and 70 percent for Sales.

1The planned use of cloud varied based on the specific enterprise processes or business operations:

3IaaS has been adopted by only 48 percent of chemical companies surveyed.

Our survey and analysis resulted in several key findings:

1The use of cloud for the chemical companies surveyed varied based on the specific enterprise processes or business operations. A majority of the chemical companies surveyed (more than 80 percent) plan to leverage the cloud for specific enterprise processes (such as HR) or business operations (IT), whereas a smaller percentage (42 percent) plan to use the cloud for new product development.

2Across the majority of the chemical companies surveyed, software-as-a-service (SaaS) has a large footprint (92 percent). Eighty-three percent use SaaS for HR and 70 percent for Sales.

3Infrastructure-as-a-service (IaaS) has been adopted by only 48 percent of chemical companies surveyed.

4

Some chemical companies that have adopted cloud have been slow to achieve benefits at scale, and found cloud has increased complexity. Privacy (68 percent), data and information management (56 percent), and security (60 percent) were identified as areas that increased or significantly increased complexity.

5The potential benefits that initially attracted chemical companies to cloud services include IT cost reduction (68 percent), reduced cost of IT infrastructure (76 percent) and the ability to better deploy skilled IT resources (60 percent).

6Approaches to readying an organization for cloud computing varies by company. Many have specific internal cloud training programs already in place for their organizations (68 percent), while some are in the process of training to create cloud-based organizational core competencies (41 percent). Others are looking to hire externally to speed adoption (41 percent), and a few (23 percent) have leveraged external cloud training programs.

For which functional area(s) are you using SaaS? Check all that apply.

n=23

HR

Finance & Accounting

Marketing

Sales

IT

Business Operations

Product Development

Supply Chain

Other

83%

65%

52%

70%

52%

35%

22%

39%

17%

FIguRE 1. SaaS is being deployed across a number of functional areas.


Types of cloud services being used and for which functions within the company

We asked executives which functions and areas of the organization they plan to use cloud computing, and a majority responded that they are planning to use cloud for HR and IT (88 percent), followed by Marketing (75 percent) and Supply Chain (71 percent). There are only limited plans to leverage cloud computing for Product Development (42 percent). When asked about current use, a more detailed picture emerged.

SaaSA high percentage of respondents, 92 percent, are currently using some form of SaaS, making it the most widely used cloud type among the respondents by far. SaaS typically has been the gateway to cloud usage for corporate customers across industries. therefore, it is not surprising to see SaaS adoption well ahead of other cloud types.

Respondents are also deploying SaaS across a number of functional areas (see Figure 1). this order of deployment, coupled with the large percentage of reported SaaS adoption, makes sense, as a large percentage of the SaaS market is currently made up of applications focused on human Capital Management and Marketing functions. the reported It deployment likely ties back to IaaS (compute and storage) adoption. those areas that may be seen as more risky for cloud—Business operations, Product development and Supply Chain—are represented at lower percentages overall.

What does this mean for the use of core enterprise resource planning (eRP) systems? Instead of expanding the core eRP, SaaS tools are providing suitable alternatives, either by replacing core eRP or providing new functionality that interfaces with the core eRP. Cloud solutions focusing on plant planning and asset optimization are still not widely leveraged.

5

For which functional area(s) are you using IaaS? Check all that apply.

n=11

HR

Finance & Accounting

Marketing

Sales

IT

Business Operations

Product Development

Supply Chain

Other

17%

17%

42%

17%

92%

25%

33%

17%

8%

FIguRE 2. IT dominates regarding IaaS usage.

IaaS Approximately 48 percent of those surveyed report they are currently using IaaS. Results when broken out by cloud-service type show a great contrast in the way these services are being deployed (see Figure 2). Clearly, IaaS is seen as the ongoing domain of the It department. each chemical company has to decide when to use its own internal private clouds (for intellectual property that must stay on premise), mixed with IaaS capabilities to achieve financial benefits.

BPaaS only 8 percent of respondents are currently using Business-Process-as-a-Service (BPaaS), reflecting a much narrower adoption than the market to date. Accenture has seen demand outside of the chemical industry, driven mostly by geographic expansion (which requires simplified business processes) and divestitures (where companies decide to focus only on their core capabilities).

BPaaS also will change how it is delivered. historically, a “lift and shift” approach was taken, leveraging labor arbitrage to reduce delivery costs, yet maintaining the underlying and existing system. the direction predicted by gartner states, “By 2017, 75 percent of Business Process outsourcing (BPo) deals will combine BPaaS or technology platform elements.”2 this statistic illustrates two important concepts: BPaaS is on the rise, and the expectation will be that BPaaS solutions are purchased and delivered—bringing the underlying technology to support the business process, and not leveraging

the existing technology system providing the capability, further disrupting the core eRP. this means that non-core functions are moving towards standardized, industry-specific business processes leveraging SaaS as the underlying technologies delivered in a BPaaS fashion.

overall, our survey shows that cloud is changing the way eRP functionality is delivered. eRP is morphing from a mono-lithic suite to a modular, multisourced and user-driven set of applications provided in the cloud. A hybrid eRP, supported mostly by SaaS tools in the chemical industry, is becoming central to non-core operations for specific business functions.


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Cloud computing benefits, concerns and complexity

Benefits As we have seen in other industries, chemical companies are most attracted to cloud’s potential for reducing It-related costs (76 percent), especially around capital expenditures (68 percent). Also not surprising is that those surveyed most frequently cited “increased speed, flexibility and responsiveness” as a benefit they expected to receive from leveraging cloud (84 percent). yet when asked which benefits they have actually realized by leveraging cloud, only one named benefit—“share information with customers, partners and suppliers”—received a higher percentage than it did regarding expectations before adoption. here we see a gap between expectation and reality (see Figure 3), something not unusual with adopters of new technologies and delivery methods.

Concerns on the topic of risk, the executives surveyed clearly see some risk involved with moving to cloud services, over a broad range of areas (see Figure 4). According to Anne Schumann, Chief Information officer and Administrative Services office for Ashland: “once the cost becomes compelling then the factors around business criticality will come into play. even so we are not at a point where we are ready to put our crown jewel information in the cloud.”

the last concern in the list, regarding the maturity of the cloud market, can be tied back to other concerns listed here, as many of the unresolved issues regarding compliance; legal ambiguity; and concerns about service level agreements, reliability and integration with existing systems reflect a market and a set of technologies that are still maturing.

Gap in % of responses: Realized versus expected benefits from cloud

Calculated based on benefit expectation (n=25) and realized benefits (n=22)

Enable new, innovative processes

Speed, flexibility and responsiveness

Support product/service innovation

Improve decision making

Expand operations to new markets

Improving the productivity of employees

Ability to better address talent shortages

Running important enterprise applications

Improve operations overall

Realized less benefits than expected

Realized more benefits than expected

0

Better achievement of ROI on capital project investments

Share information with customers, partners, suppliers

Permanently and significantly lower operating costs

Which of the following are concerns your organization has with regard to cloud-related issues? Check all that apply.

n=24

Data security, privacy and confidentiality issues

Integration with existing systems

Legal or regulatory ambiguity

Reliability, uptime and business continuity issue

Maturity of cloud computing market

100%

88%

84%

68%

60%

60%

56%

Compliance with legal, regulatory and auditing requirements

Service level agreements, guarantees and contract issues

FIguRE 3. Weighing expected benefits versus realized benefits.

FIguRE 4. Data security, privacy and confidentiality top the list of cloud concerns.


As for the top concern—data security, privacy and confidentiality issues—additional analysis should be done to determine if security is a true roadblock. david day, global director, Information Systems and Corporate Facilities—the dow Chemical Company, stated when discussing non-critical It solutions, “We are looking to use the cloud to increase security.”

ComplexityRespondents report mixed results in regards to complexity. Although cloud applications promise greater flexibility and agility, those surveyed have seen increased complexity regarding security, data privacy and data information management—and reduced complexity regarding hardware and general infrastructure issues (see Figure 5). this is somewhat to be expected as SaaS tools provide multitenant capabilities, providing size and scale from an infrastructure stand-point, yet unable to match industry-specific requirements and demands.

Percent of respondents

n=25

Hardware

Services around Hardware

Infrastructure

Compliance

Data and Information Management

Security

Privacy

60%

52%

44%

44%

56%

60%

68%

Decreasing IncreasingCOMPLEXITY

FIguRE 5. Complexity experienced around security, data privacy and data information management with cloud.

Cloud Risksdepending on the industry, concerns about data privacy and loss, outages, vendor lock-in and other potential risks have kept many organizations from moving to cloud. In certain countries, the physical location of the data center where a customer’s data is stored in the cloud—known as the issue of “data sovereignty”—can loom very large, especially if local or country regulations regarding data storage practices apply. But the biggest single inhibitor to cloud adoption has been the worry about security—will the company’s data be secure on the cloud? this is a second important reason that hybrid cloud strategies have been adopted by many organizations; a hybrid approach allows critically important, core workloads to remain on-premise, while more customer-facing applications move to a public cloud.

Stuart Brown, Accenture’s global Cloud lead for Resources industries comments: “our experience shows that leveraging different types of clouds brings the highest return on investment for companies; there is not a one-size-fits-all solution as there are too many factors to consider. Cost balanced against contractual terms, availability and a host of other factors all must be considered as part of creating a hybrid cloud solution that brings value to an organization.”

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The impact of cloud computing on IT organizations

Cloud computing is changing the way IT organizations function and beginning to impact the chemical industry’s approach to IT. For example, IT can take the role of service broker or integrator, managing a service catalog and integrating cloud services with traditional IT workloads. This is an approach underway at The Dow Chemical Company. The change also allows the redeployment of IT resources to be closer to the business, which is an approach used by Lubrizol.

Also, It organizations will be able to operate with fewer resources, while delivering the same outcomes. the surplus capacity could be available for servicing the business or supporting innovative projects.

In regards to cloud training within an organization, a majority of survey respondents (69 percent) indicated they will train

employees internally on cloud security, applications and services, while less than half (41 percent) will provide training to develop cloud-based organizational core competency skills. Some will hire external experts to speed adoption (41 percent), and a small number (23 percent) will utilize external training programs.

Cloud Exit StrategiesMany corporations considering cloud adoption also want to know more about exit strategies, if their cloud strategy does not meet expectations. the reality is that with the overall immaturity of the still-evolving cloud market—regarding offerings, service levels and terms & conditions—there is no set of standard practices around customers’ exit strategies. In particular, there is not a defined practice for how a company can get all of its data back from a cloud service provider, if it has been stored off-premise with a third-party. this is an issue that the cloud services industry will need to address soon if it expects to see widespread adoption of cloud by enterprises for anything but non-core workloads.

Similarly, potential cloud adopters ask whether an organization needs to make itself “cloud-ready,” in terms of It infrastructure, business processes, internal skillsets and so on. the reality is that there is no simple definition of the cloud-ready enterprise—but it is clear that new cloud adopters should prepare for an interim period of challenges regarding the integration of legacy workloads with those workloads that are moved to cloud, and with those native cloud applications that are adopted. Customers can expect some level of increased complexity (see the survey results below) in the short-term, even as they look forward to more streamlined, efficient management of cloud applications in the long-term.

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View on cloud adoption

We asked the survey participants how they will use cloud computing during the next 18 months, and received a few surprising answers (see Figure 6). This is a noteworthy combination, as it includes both IT-specific areas, as well as cross-enterprise functions. As David Day, global Director, Information Systems and Corporate Facilities—The Dow Chemical Company said: “We are not going to improve operating costs by moving just a few systems to the cloud. Instead you have to scale your migration objective, targeting a significant percentage of your application or IT service portfolio.”

With eRP listed first, the conclusion is that chemical company executives expect to become more comfortable with moving core enterprise applications like eRP to the cloud, despite a perceived potential risk. dwain Wilcox, VP/CIo of Axiall commented on the current situation: “Cloud and SaaS models are still maturing for full-fledged eRP. those who have hosted eRP on the cloud have extended IaaS on their own or outsourced major portions of the eRP infrastructure.” these survey results also reflect an understanding of cloud as an option to address ongoing, It-focused problems such as how to effectively back-up data and store larger files.

the most immediate step may be to leverage public cloud capabilities for non-production environments. other SAP-dominant industries have begun to make this move, allowing for quick side-by-side enhancements to be made, while at the same time turning on capacity as needed for short-term duration projects.

For what purposes will your organization use cloud computing during the next 18 months?

n=24

Backing up data

Developing and testing software

Storing and archiving large files (e.g., video or audio)

Running e-business or e-government websites

50%

46%

46%

38%

33%

33%

29%

25%

Supporting projects (conducting surveys, developing engineering prototypes etc.)

Providing an IT platform for business processes involving multiple organizations

Running CRM, ERP or supply chain management applications

Providing personal productivity and collaboration tools to employees

FIguRE 6. Core programs will move into the cloud in the near future.

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Recommendations

Based on the survey results and successes achieved in other industries, Accenture believes that chemical industry executives should consider doing the following over the next three years:

• Shore up their ERP system in terms of stability and open architectures to integrate with SaaS and other applications

• Implement SaaS where it makes business sense

• Balance security with benefits; be precise on what capabilities and intellectual property stays “inside”; exploit cloud platforms where benefit and return are greatest

• Look to low cost solutions, such as public cloud IaaS, to meet non-critical needs

• Create a long-term integration roadmap and build the architecture as projects are approved

• Realize that BPaaS is coming; establish a baseline cost for non-core business services and take advantage of proven successes from other industries where cost benefits are quickly validated

• Create a plan and revisit the plan every four months

• Manage appropriate cloud trainings to ensure employee capabilities meet the new technical requirements

14 | Chemical Companies’ Cloud Strategies; Current Adoption and Future Plans

What comes next

To date, the chemical industry has taken a conservative and prudent approach towards new technologies and IT delivery methods. Our research shows continuing concern among current cloud adopters in the industry about the complexities of integrating cloud with legacy IT, security concerns, as well as a gap between expectation and reality around cloud benefits—something not unusual with adopters of new technologies and delivery methods.

However, these results show an eagerness to move beyond the early adoption stage and begin to shift key enterprise applications to the cloud. Chemical companies face many of the same challenges that companies in other industries face, regarding globalization, competitive pressures, the need to expand into new markets, IT security risks, and limited IT budgets. Clearly, there is a positive trend and an increasing pace in the industry to consider and subsequently leverage cloud more frequently. In any step-change in business or technology, early movers stand to reap the lion’s share of the benefits. Accenture believes that it is time for chemical companies to embrace cloud computing, as part of a broader digital strategy, so that when the game changes, it turns in their favor.

15

Cloud Computing: Cloud computing is a model for enabling ubiquitous, convenient, on-demand network access to a shared pool of configurable computing resources (e.g., networks, servers, storage, applications, and services) that can be rapidly provisioned and released with minimal management effort or service provider interaction. This cloud model is composed of five essential characteristics, three service models, and four deployment models.

Public Cloud: The cloud infrastructure is provisioned for open use by the general public. It may be owned, managed, and operated by a business, academic, or government organization, or some combination of them. It exists on the premises of the cloud provider.

Private Cloud: The cloud infrastructure is provisioned for exclusive use by a single organization comprising multiple consumers (e.g., business units). It may be owned, managed, and operated by the organization, a third party, or some combination of them, and it may exist on or off premises. Hybrid Cloud: The cloud infrastructure is a composition of two or more distinct cloud infrastructures (private, community, or public) that remain unique entities, but are bound together by standardized or proprietary technology that enables data and application portability (e.g., cloud bursting for load balancing between clouds).

IaaS Infrastructure as a Service (IaaS): is a service model that delivers computer infrastructure on an outsourced basis to support enterprise operations. Typically, IaaS provides hardware, storage, servers and data center space or network components; it may also include software. Infrastructure as a Service (IaaS) is also known as Hardware as a Service (HaaS).

Platform as a Service (PaaS): The capability provided to the consumer is to deploy onto the cloud infrastructure consumer-created or acquired applications created using programming languages, libraries, services, and tools supported by the provider. The consumer does not manage or control the underlying cloud infrastructure including network, servers, operating systems, or storage, but has control over the deployed applications and possibly configuration settings for the application-hosting environment.

All definitions provided by National Institute of Standards and technology (NISt) - http://csrc.nist.gov/publications/nistpubs/800-145/SP800-145.pdf, except for BPaaS.

Glossary

Software as a Service (SaaS): The capability provided to the consumer is to use the provider’s applications running on a cloud infrastructure. The applications are accessible from various client devices through either a thin client interface, such as a web browser (e.g., web-based email), or a program interface. The consumer does not manage or control the underlying cloud infrastructure including network, servers, operating systems, storage, or even individual application capabilities, with the possible exception of limited user-specific application configuration settings.

Business Process as a Service (BPaaS)3: The delivery of business process outsourcing (BPO) services that are sourced from the cloud and constructed for multitenancy. Services are often automated, and where human process actors are required, there is no overtly dedicated labor pool per client. The pricing models are consumption-based or subscription-based commercial terms. As a cloud service, the BPaaS model is accessed via Internet-based technologies.

What comes next

About AccentureAccenture is a global management consulting, technology services and outsourcing company, with more than 305,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of uS$30.0 billion for the fiscal year ended Aug. 31, 2014. Its home page is www.accenture.com.

About ChemITCThe Chemical Information Technology Center (ChemITC®) of the American Chemistry Council (ACC) is a forum for companies in and associated with ACC to address common IT issues. Through strategic programs and networking groups dedicated to addressing specific technology issues, ChemITC is committed to advancing the use of information technology to streamline processes, improve decision-making and support individual company business objectives.

ContributorsThank you to our various contributors to this report, including the CIO Roundtable and Infrastructure Networking group from ChemITC, Rahul goturi—VP, CIO, WR grace, and David Yankovitz and Manish Panjwani from Accenture.

References1 © gartner. Forecast: Public Cloud Services, Worldwide, 2012-2018, 3Q14 Update September 29, 2014.

2 © the gartner Scenario for It Services Providers: the Future of It Services october 2014.

3 © gartner glossary, BPaaS, http://www.gartner.com/it-glossary/business-process-as-a-service-bpaas.

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Copyright © 2014 Accenture All rights reserved.

Accenture, its logo, and High Performance Delivered are trademarks of Accenture.

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Chemical Companies’ Cloud Strategies: Current Adoption and …€¦ · • Cloud computing benefits, concerns and complexity • The impact of cloud computing on IT organizations