the cloud takes shape - global cloud survey

7/30/2019 The Cloud Takes Shape - Global Cloud Survey

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The cloud takes shape

Global cloud survey:

the implementation challenge

kpmg.com/cloud

KPMG INTERNATIONAL
http://www.kpmg.com/cloudhttp://www.kpmg.com/cloud


2/28

6

Setting expectations:

Cost reduction

is a given, but

transormation is critical

18

Aiming or theblue sky:

Managing legal

and regulatory

concerns

27

Acknowledgements

25

Conclusion

10Tackling the

practicalities:

The implementation

challenge

What you should

take rom

this report

4

14Taking a sober look

at security:

Comort increases

but challenges remain

22From liability to

opportunity:

The role o tax in

the cloud

26

About the Survey

Foreword

3

Contents

2013 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMG International provides no client services. All rights reserved.


3/28

Steven Hill

Global Leader of

Innovation, Advisory

Rick Wright

Global Cloud Enablement

Program Leader

Foreword

3the cloud kes shpe

2013 KPMG Inernionl Cooperive (KPMG Inernionl), Swiss eniy. Member frms o he KPMG nework o independen frms re flied wih KPMG Inernionl. KPMG Inernionl provides no clien services. all righs reserved.

Cloud has fnally started to move beyond the hype and into thevery abric o todays enterprise. Organizations around the worldare gaining valuable insight into not only the potential benefts ocloud, but also the practical challenges o adopting these highlydisruptive technologies.

Wih mjoriy o orgnizions now climing

o hve doped cloud ino les pr o heir

enerprise, we re now seeing he mrke

mure: new lessons lerned, leding prcices

nd chllenges re emerging nd body o

knowledge is sring o orm.

as such, we hve once gin prnered wih

Forbes Insightso conduc our nnul survey

o cloud dopers. this repor is bsed on he

responses o more hn 650 senior execuives

in some 16 counries represening muliple

indusries. their opinions nd responsesprovide vluble perspecive on he

chllenges nd complexiies cing odys

orgnizions.

Bsed on he responses o our survey

pricipns nd he experience o KPMGs

cloud leders, his repor clerly indices h

he cloud mrkeplce or boh dopers nd

providers is quickly expnding nd muring. Bu

he repor lso fnds h he resuling journey is

proving more compliced nd chllenging hn

mny hd originlly niciped.

th sid, i is cler h wih greer

experience nd ew hrd-won lessons

execuives coninue o believe h he benefs

o cloud dopion r ouweigh ny growing

pins h hey my experience hrough

implemenion. Wh hese execuives

mus recognize, however, is h in order

o rep he ull benefs o cloud dopion,

heir orgnizions mus lso rnsorm heir

business processes, or hey run he risk o

misinerpreing he shor erm It svings

s success, while he longer erm sregicbusiness objecives go unrelized.

this repor mkes compelling red or

ny orgnizion h is eiher plnning or

implemening cloud sregy, nd provides

some prcicl nd cionble dvice or

enerprises nd heir execuives. When

combined wih our compnion repor,

Breaking through the cloud adoption barriers,

globl survey o cloud service providers,

comprehensive view o he curren cloud

environmen begins o orm.


4/28

In some ways, success

really comes down to

the tone at the top o the

organization in terms o

how critically they view

cloud as an enabler andpotential dierentiator

or the business.

Those with a highly

developed sense o

enterprise will gain

the most rom the

cloud.

Bryan CruickshankEMEA Region

Cloud Leader,

KPMG in the UK

What you should take from this report

4 The cloud takes shape


There is no longer any doubt that, as a critical set oenabling technologies, cloud can signifcantly impacthow any organization conducts its business. Ascloud begins to become more mainstream within thebusiness environment, we are seeing organizationsmove rom the when and why o the cloud adoption

process to instead ocus on the how.

Getting the timing right

As organizations gain more experience

in the cloud and start to shit moreand more core business unctions

onto cloud platorms, we are seeing

a growing recognition that cloud

adoption is signicantly more complex

than originally anticipated, particularly

in terms o data management, system

integration and the management o

multiple cloud providers.

One o the most important lessons

uncovered by this years research

is that business process redesignmust occur in tandem with cloud

adoption i organizations hope to

achieve the ull potential o their cloud

investments. Simultaneous process

redesign will also better address

the complexities that oten arise in

the implementation and operational

phases. Moreover, process redesign

programs must also take into

consideration the complexities and

adoption costs associated with cloud

implementation.

A maturing perspectiveon cloud

How can organizations gain the ull

benets o cloud? How can they

reduce the impact o change in a

positive and meaningul way? How

can enterprises truly capitalize on

clouds transormational potential?

Our research nds that as the

market matures and organizations

gain much-needed experience

and capabilities in the cloud a

marked shit is underway within the

enterprise. The data in this reportdemonstrates that a greater ocus is

being placed in new areas including

getting the business process redesign

right, acilitating appropriate change

processes and business model

improvements, and moving more

core unctions to the cloud.


5/28

Taking a more strategicapproach

This survey also demonstrates that

most organizations have started to

shit their ocus away rom pure cost

reduction objectives and are instead

taking a more strategic approach

to cloud. This is welcome news. I

organizations do not approach cloud

within the context o their long-term

strategic objectives and planning,

true business transormation will

never be realized.

This strategic approach must includeensuring skills and resources

are in place or proper cloud

implementation, that enhanced

governance procedures exist or

both cloud systems and provider

management, and that operating

processes are overhauled and

guidelines are developed to refect the

changing operating environment that

is introduced and enabled by cloud.

Turning challenges intoopportunities

Our report also nds that

organizations are starting to more

clearly understand some o the other

aspects o cloud that can either

signicantly enable or impair their

organizations ability to reap the

rewards o cloud adoption.

Business leaders have started to

recognize that cloud adoption should

improve security rather than lessen

it. As such, we are seeing business

executives work much more closelywith IT to develop a joint approach

on cloud security that ocuses on

ensuring that their data, applications

and intellectual property are reliable,

accessible and sae.

Adopters are also starting to prepare

or the inevitable complexities that

will arise rom todays changing

regulatory environment. In many

cases, they are establishing policies

and procedures that enable them

to modiy their cloud strategies

and address uture regulatory

requirements as they arise, and are

thereby developing a competitive

advantage or the uture.

Similarly, our research nds that

organizations are approaching the

tax structure o cloud deployments

more proactively and strategically,

rather than as an aterthought toimplementation. Many are nding

that proactive tax planning and risk

mitigation can make a signicant

dierence in the companys tax

position and thereore positively

impact the overall cloud business case.

5The cloud takes shape



6/28

Cloud is much more

than just another IT

cost reduction lever.

Rick WrightGlobal Cloud Enablement

Program Leader,KPMG in the US

Setting expectations:

Cost reduction is a given, but transformation is critical

This survey demonstrates that cloud adoptersare starting to ocus on achieving thetransormational benefts o cloud.

When asked about the objectives that

their organizations expect to gain romcloud, two o the top three objectives

identied by business executives

were opportunities or cloud to

enhance new market entry and drive

business process transormation,

both o which are key enablers o

greater business eectiveness.

Todays organizations are placing

more emphasis on determining how

to leverage cloud to enable business

transormation. So while cost

reduction was cited as a key objectiveby almost hal (48 percent) o all

survey respondents, our research

seems to indicate that cost reduction

is becoming the base-level benet

sought rom cloud. The ability o cloud

to help speed adoption within the

organization was noted as an objective

by 28 percent o respondents.

Interestingly, IT respondents were

more likely than their businesscounterparts to cite either cost

reduction objectives or speed to

adoption benets o cloud adoption.

Survey results indicate that cost

savings are already being achieved

through cloud adoption. Seven

in 10 respondents either agreed

or strongly agreed that the cloud

environment had delivered signicant

eciencies and cost savings, which

in turn is creating a greater appetite

and acceptance o cloud within theboardroom and wider enterprise.




7/28

Business executives

are starting to fully

appreciate the potential

transformative value that cloud

can bring to the enterprise.

Rick Wright

Global Cloud Enablement

Program Leader,

KPMG in the US

What are the key objectives behind your

current approach to cloud adoption?

Cost reduction

Improved alignment/

interaction with customers

Speed to adoption

New market entry

Business processtransformation

24%

24%21%

21%

41%

Business

Executives

(n = 287)

34%

29%

20%

20%

52%

IT Executives

(n = 387)

22%

20%

48%

28%

27%

TotalRespondents

(n = 674)

Source: KPMG Internationals Global cloud survey: the implementation challenge

7the cloud kes shpe

2013 KPMG Inernionl Cooperive (KPMG Inernionl), Swiss eniy. Member frms o he KPMG nework o independen frms re flied wih KPMG Inernionl. KPMG Inernionl provides no clien serv ices. all righs reserved.


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0 10 20 30 40 50

32%

38%

21%

5%

1% Strongly disagree

2

3

4

5 Strongly agree

Are cloud environments delivering significant efficiencies and

cost savings today?

1

Total respondents (n = 674)


70 percent o

respondents believe

that cloud is delivering

efciencies and cost

savings today.

8 the cloud kes shpe



9/28

KPMG viewpoint:The transormative value o cloud

Rick Wright

Global Cloud Enablement Program Leader, KPMG in the US



With our survey showing that more than hal o

organizations are already working in the cloud, it is

encouraging to see that cost reduction and speed

to adoption remain high on the list o objectives orexecutives. These benets were always central to the

cloud value proposition, and the act that so many

enterprises continue to see them as key objectives

shows that experience in cloud environments has not

seemed to dull these anticipated gains.

But the survey ndings also show that organizations

are beginning to recognize that cloud is much more

than just another IT cost reduction lever. This is

illustrated in the gap between how IT and business

leaders view the cloud. Essentially, the IT unction

sees cloud as a strategy to run their business more

eciently by reducing costs and enhancing agility,two o the biggest challenges or most IT leaders.

The act that the business is less ocused on these

objectives indicates that they see these challenges

as being the purview o the technology unction and

rightly or wrongly assume that IT is taking every

opportunity to achieve these operational objectives

already.

These results also suggest that business executives

are starting to ully appreciate the potential

transormative value that cloud can bring to the

enterprise. And, having experienced some o the

immediate benets o the cloud, many are now

starting to look deeper into their operating models to

see how these advantages can be extended into the

wider enterprise.

To achieve these benets, however, it will be

imperative that strong emphasis is placed on

understanding clouds strategic potential and

incorporating that into not only the overall business

strategies, but also the cloud investment plans and

technology architecture roadmaps.

Ultimately, executives o all stripes will need to

remember that cloud is not a short-term x or the

business, and that some o the benets will only

start to have a signicant impact a couple o years

down the road.

Indeed, gaining real cost savings rom the cloud isabout more than simply moving rom xed costs to

operating costs; the greatest cost savings and,

more importantly, the transormational business

benets will come rom the longer-term outcomes

such as more ecient processes, more fexible

operating models and aster entry into new markets

and geographies.

However, adapting existing business processes to

the new cloud solution may be more complex today

than in the past when IT organizations tended to

purchase a best t package and then customize it

to their existing business processes. Today, those

business processes that are embodied in cloud

services are limited in the amount o customization

that organizations can drive, orcing the business to

think through how they most eectively adapt their

business processes to align to the cloud service.

As my colleague at KPMG in China, Egidio Zarrella,

Clients and Innovation Partner, and Cloud Leader,

notes, Organizations need to recognize that

cloud adoption is ar more than a technology

implementation project; its a transormative journey

that will catalyze change across the organization. As

such, it is critical that organizations dedicate sucient

budget over appropriate timelines to support the

transormative change that will need to occur as cloud

is rapidly adopted into the enterprise.

While process transormation via the cloud is key

to achieving real and lasting benets, getting there

will not be simple. It will require business leaders

to work with IT to develop innovative strategies and

plans to redene and overhaul operating models

and processes in order to take advantage o cloud

capabilities. Otherwise, these transormational

benets will remain vague and aspirational, as hasbeen the case with some early cloud adoption eorts.


10/28

Implementation and

integration challenges

are critically important

to overcome as i they

are not adequately

addressed they canthreaten both the ROI

and business benefts

o cloud, particularly

as adoption levels

increase and pull

in more core

and strategic

applications and

systems.

Steven SalmonPrincipal Advisor,

KPMG in the UK

Tackling the practicalities:

The implementation challenge

Our survey indicates that some o the biggestchallenges acing cloud adoption relate to theimplementation o cloud services. One third o allrespondents said they had ound costs related toimplementation were higher than expected, while31 percent indicated that the process o integrating

existing IT architecture with new cloud services wascreating challenges.

A critical challenge to cloud

success is that many respondents

do not seem to have the right

skills to match their cloud plans

and ambitions. When asked how

skilled their organizations were

at overcoming these challenges,respondents said that integration

with existing architecture was one o

the areas where their organizations

demonstrated the least amount

o skill. And while their skills in

managing implementation costs

were ranked somewhat higher, they

still all behind in more complex

areas such as legal and regulatory

compliance and tax.

It was somewhat surprising,

thereore, to nd that a signicant

majority o respondents said that

they rely primarily on in-house

resources rather than external

providers or consultants or their

cloud implementations, with higher

numbers in Asia Pacic and the

Europe, Middle East and Arica(EMEA) regions.

Survey respondents also noted that

they are increasingly concerned

about the loss o control that

may come rom moving data and

processes into the cloud. This

concern is most keenly elt in the

Americas where there has been

greater cloud experience and

uptake to date, illustrating that this

concern may grow with greater cloud

experience and usage elsewhere.




11/28

The ability to develop and deliver an

integration capability within IT will

be a key success factor for CIOs and their

organizations going forward.

Steven Salmon

Principal Advisor,KPMG in the UK

Which of the following are the key challenges of your approach to cloud adoption?

Implementation/transition/

integration costs too high

33%

Integration with

existing architecture

31%

Data loss and

privacy risks

30%

Loss of control

30%

Lack of visibility into future

demand, associated costs

A lack of standards

between cloud providers(interoperability)

General

security risks

Risk of intellectual

property theft

21%

Legal and regulatory

compliance

18%

Transparency of operational

controls and data

18%


26%

26% 26%


11the cloud kes shpe



12/28

0 1 2 3 4 5

Legal and regulatory compliance

Uncertain tax implications

Dissatisfaction with offerings/performance/pricing from vendors

System availability and business continuity risks

Implementation/transition/integration costs are too high

Measuring ROI

A lack of standards between cloud providers (interoperability)

Lack of maturity of providers

Integration with existing architecture

Not sure the promise of a cloud environment can be realized

4.18

4.03

4.03

3.96

3.95

3.76

3.75

3.72

3.67

3.51

Source: KPMG Internationals Global cloud survey: the implementation challenge Total respondents (n = 674)

How skilled do you feel your organization is at overcoming these challenges?

(Using a scale of 1 to 5, with 5 being the highest)




13/28

13the clud kes shpe

2013 KPMG Ineninl Cpeive (KPMG Ineninl), Swiss eniy. Membe ms he KPMG newk independen ms e lied wih KPMG Ineninl. KPMG Ineninl pvides n clien sevices. all ighs eseved.

KPMG viewpoint:Understanding the reality of implementation and integration

Steven Salmon

Pincipl advis, KPMG in he UK

the ise cs nd cmplexiy s mj cludimplemenin chllenges is inevible, in p

becuse sme cmmn miscncepins nd hype

suunding clud. Clud is n simply buy, bl

n nd g sluin. rhe i equies gnizins

undmenlly nsm he wy hey pcue,

mnge nd use hei It pplicins nd sevices

which, in un, dives up he cs nd cmplexiy

implemenin.

In he cnex he hype, cnusin nd simplisic

vend mdels, we cme css gnizins h

hve ssumed h clud culd be implemened wihin

hei exising business nd It chiecue wihu

ecgnizing he signicn nsmin h mus

ccu bee clud benes cn be ully gined.

Hweve, he ndings in his suvey indice h s

gnizins gin me expeience in he clud hey

e incesingly sing ecgnize h i is n

simply cse fipping swich; business pcess

edesign, It mngemen cpbiliies, sysems

inegin, insucue nd cnguins e ll p

he nsiin pcess nd ech equie invesmen

ge i dne igh.

respndens ls ended undeesime he cssnd cmplexiy ineging muliple clud pvide

plms nd diinl sysems in chesive nd

inepeble business sevices h spn uncins

css he gnizin. the eliy is h ms

gnizins will engge wih mny clud sevice

pvides supp dieen business pcesses nd

uncins bu wih n cle indusy sndds ye in

plce will nd he pcess ensuing inepebiliy

be he cmplex. this is especilly ue

gnizins h hve ledy dped lenive

sevice delivey mdels such s shed sevices nd

usucing, which ls mus be ineged in hemix nd mnged lngside clud es.

accding he suvey, gnizins e sing

dedice lge pin hei It budges wds

clud implemenin nd subscipins. Bu given

h in ms gnizins vell It budges e

nly gwing in he single digis, mny gnizins

will likely suggle deemine whee bes

decese he ypes It spend.

We heee believe h he biliy develp nd

delive n inegin cpbiliy wihin It will be key

success c CIos nd hei gnizins gingwd. S while sme bseves sugges h clud

will diminish he le he CIo, picully s It

decisin-mking nd budgeing mve uhe in he

business, we see he CIos le s becming eve-me

ciicl s he business sevice inegin bke n

cmmecil level, pcess level nd echnicl level.

this suvey hs ls shwn h cnl nd gvennce

isk hve mved up he It nd business gend s me

he ce pcesses mve in he clud. Given h

he wneship clud wihin he gnizin is en

cued wihin he sepe business uncins, he

lines isk wneship e pidly becming blued. assuch, i will be ciicl h gnizins ddess nd

undesnd he vius elemens lss cnl

whehe h be echnicl, legl eguly s p

hei implemenin nd inegin plnning.

Given hese cncens nd chllenges, numbe

gnizins e sying h he clud is n ye edy

dpin. and while h is debble, he el

quesin hem shuld n be whehe he clud is

edy hem, bu he whehe hei gnizin is

edy he clud.


14/28

Executives must

ensure that they

have thought careully

about creating a cloud

security strategy.

Greg BellPrincipal,

KPMG in the US

Taking a sober look at security:

Comfort increases but challenges remain



Not surprisingly, challenges relating to securityand privacy continue to rank highly on the list oconcerns or both IT and business executives.However, the data indicates that organizations arebecoming more confdent in the security o cloudproviders.

Whereas in our 2011 survey, security

ranked as the top challenge acing

executives, in this years survey,

security-related challenges such as

data loss and intellectual property

thet ranked below other issues

such as integration challenges and

implementation costs.

This does not mean that security

is no longer a key issue or

executives. O the possible securityconcerns, data loss and privacy

risks were cited the most oten

by respondents, while general

security risks and risk o intellectual

property thet were only somewhat

less requently identied. Other

key security challenges were also

noted, including legal and regulatory

compliance which is oten security

related and system availability and

business continuity risk.

However, when asked how

challenging they believed each

o these problems to be, survey

respondents rank security-related

challenges as some o the mostdicult to overcome, indicating that

they still have not come to grips with

the extent o the security-related

challenges that they ace.


15/28

The act remains

that security

is still a signifcant

concern or business

and IT leaders.

Greg BellPrincipal,

KPMG in the US

Security-related challenges to cloud adoption

Note: Value will not add up to 100 due to extraction of data.


Data loss andprivacy risks

30%Risk of

intellectualproperty theft

21%General

security risks

26%Legal

and regulatorycompliance

18%System availability

and businesscontinuity risks

16%


4.21

4.19

4.11

4.03

3.95Legal and regulatory

compliance

System availability &business continuity risks

General security risks

Data loss and privacy risks

Risk of intellectualproperty theft

0 1 2 3 4 5

How challenging do you believe each of these areas to be?

(Using a scale of 1 to 5, with 5 being the highest)


15the cloud kes shpe



16/28

HR

Office tools/

productivity

Customer

care

Sales/

marketing

Email/

collaboration

software

IT

management

Supply chain

and logistics

54%

53%

51%

51%

52%

57%

42%

32%

33%

32%

30%

33%

34%

35%

Finance,

accounting/

financial

management

Tax

Sourcing and

procurement

Content

management

Security

management

Business

intelligence/

analytics

Operations,

manufacturing


NowWithin

18 monthsNow

Within

18 months

In which functional areas of your business are you using cloud-enabled services today, and which

are you likely to adoptwithin the next 18 months?

41%

40%

36%

36%

35%

39%

41%

35%

33%

35%

37%

33%

35%

35%





17/28

It is worth noting that concerns

related to security do not seem to

be slowing cloud adoption. In act,

more than a third o respondents

suggest that their organizations

will adopt cloud within the next

18 months in areas such as sourcing

and procurement; supply chain and

logistics; nance, accounting and

nancial management; business

intelligence and analytics; and

even tax. Clearly, this indicates that

organizations continue to move more

core and sensitive data and processes

to the cloud, despite ongoing security

concerns.

Functions that until

just recently were

considered too sensitive

or complex or cloud are

now being put on the table.Greg Bell

Principal,

KPMG in the US



KPMG viewpoint:Confdence in security grows

Greg Bell

Principal, KPMG in the US

While the data shows that security-related concerns

are still top-o-mind, the real story underlying these

ndings is that organizations are quickly gaining more

condence in the security o their cloud services

providers.

Through our experience conducting dozens o cloud

security reviews, we have ound that with ew

exceptions leading service providers tend to have

a very rm grasp on security. In most cases, theseproviders oer robust and resilient security measures

and controls that may enhance some companies

security rather than diminish it.

Although some organizations are starting to realize

that the cloud environment is oten as secure as

traditional internal IT systems and architecture,

security remains a signicant concern or business

and IT leaders.

This in no way means that security should slide down

the cloud agenda. In act, beore organizations move

one piece o data into the cloud, they must ensure

that they have thought careully about creating a cloud

security strategy that takes into account the broad

array o service providers that the organization may

engage. Ideally, this will include key measures or

data security, integrity and availability.

Most importantly, developing a robust cloud security

strategy will require IT and the business to work

closely together to ensure that the organizations

security posture and approach are well thought

out and articulated. The business, or example, will

need to decide how ast they need their data, how

accessible it needs to be and what level o security

is appropriate. The technology unction, on the

other hand, will need to translate those needs into

specic security requirements and then manage

their providers to maintain and monitor those security

protocols and controls.

The reality is that Inormation Security (IS)

departments will continue to guard the organizations

key inormation assets, whether or not those assets

are stored in-house or in the cloud. But this movement

to cloud will require IS leaders to start thinking and

communicating about security in terms o how it

impacts the business operations and the services they

use, rather than the security o inrastructure such as

servers and networks.

The bottom line is that the business and its executives

dont need to understand the nitty-gritty o cloud

security; they do, however, need to know that their

data, applications and intellectual property are

reliable, accessible and sae.


18/28

Key legal and regulatory challenges to cloud adoption by industry


0 10 20 30 40

Financial services 23%

Diversified industrials/manufacturing 17%

Energy and natural resources 11%

Healthcare and pharmaceuticals 13%

Retailers, restaurants 40%

Consumer goods manufacturers 12%

Food and drink manufacturers 7%

Communications and media 7%

Technology 20%

Government/public sector 9%

Academia 25%

Non-profit 7%

Other 9%

It will not be long

beore regulators

start to enorce new

rules that will have a

signifcant impact on

the way organizations(particularly global

ones with cross-

border activities)

use the cloud.

Shahed Latif

Principal,

KPMG in the US

While experience shows that legal and regulatorycompliance is often a complex challenge for manyorganizations, and can vary from one region andindustry to the next, only 18 percent of respondentssaid it was impacting cloud adoption within theirorganization. However, this result is likely to be more

a function of complacency or lack of awareness ofregulatory challenges and risks than of buyers skillsor prowess at actually addressing these challenges.

regionl dieences emeged om

he d, wih espondens om he

ameics ound 10 pecen moe

likely o cie legl nd eguloy

complince s key chllenge in

hei ppoch o cloud dopion hn

espondens om asi.

Managing legal and regulatory concerns

Aiming for the blue sky:


2013 KPMG Inenionl Coopeive (KPMG Inenionl), Swiss eniy. Membe fms o he KPMG newok o independen fms e flied wih KPMG Inenionl. KPMG Inenionl povides no clien sev ices. all ighs eseved.


19/28

Key legal and regulatory challenges to cloud adoption by region

22% 17% 13%

ASPACEMEAAmericasTotal respondents

18%


a number rgnizins re explring

hw prive clud envirnmens my

help hem slve penil legl nd

regulry chllenges, wih lms

qurer (24 percen) ciing hese s

resns r explring prive clud,priculrly by respndens in he reil

nd cdemi secrs.

oher crs reled legl nd

cmplince were ls seen be

incresing prive cluds perceived

vlue. alms hird respndens

sid heir decisin use prive clud

ws reled cncerns bu d lssnd privcy nd lss cnrl, while

nly slighly ewer respndens cied

rnsprency perinl cnrls.

Given the

quantum

o government

investment into this

area and the mass

o inrastructure andcapabilities already

available in the market,

we ully expect that

once China clarifes

some o the remaining

legal and regulatory

questions the country will

quickly become one o the

astest and most dynamiccloud markets in the world.

Egidio Zarrella

Clients and Innovation Partner

and Cloud Leader,

KPMG in China

19the clud kes shpe

2013 KPMG Inerninl Cperive (KPMG Inerninl), Swiss eniy. Member frms he KPMG newrk independen frms re flied wih KPMG Inerninl. KPMG Inerninl prvides n clien serv ices. all righs reserved.


20/28

Organizations need to frst

understand how cloud

will impact compliance across

each o the jurisdictions they

operate within.

Shahed Latif

Principal,KPMG in the US

KPMG viewpoint:Increasing regulation on the horizon

Shahed Latif

Pincipl, KPMG in he US

ask ny execuive o lis hei op hee business

chllenges his ye nd you e likely o fnd boh

cloud nd egulion he op o he lis. Ye ew

seem o be we o he complex chllenges h ise

when you combine he wo.

th being sid, while somewh poblemic, i

is no eniely supising h legl nd eguloy

complince ws low on he lis o cloud consideions

in his suvey. Fo one, hee e ew egulions

specifclly eled o cloud in mos mjo mkes.

Some, like he US, he UK nd Chin, e slowly

moving owd wih vious eos o snddize

specs o cloud, such s he FedraMP iniiive

in he US. Bu even whee egulions e being

pomulged, enocemen is wek nd public visibiliy

is low (complince beches ely hi he on pges

o he newsppe in he sme wy h beches in

secuiy o pivcy do).

In ou expeience, he issue hs eceived lile seious

enion on he copoe cloud gend wihin mny

ognizions nd, since ew ognizions hve ye

o move ll o hei coe sensiive d ino he cloud,mny execuives cuenly believe h he issue is

moo o he ime being.

this is n unoune nd poenilly dngeous

ovesigh. Yes, egulions e genelly no well

omed o evolved in mny mkes, bu he poin is

h hey e oming nd evolving. I will no be long

beoe egulos s o enoce new ules h will

hve signifcn impc on he wy ognizions

(picully globl ones wih coss-bode civiies)

use he cloud.

Mos globl ognizions ove he ps ew yes

hve lgely decenlized hei globl complince

sndds o llow locl lignmen nd moe diec

lines o esponsibiliy. Bu once hei d ss

o become ggeged in he cloud, hey e oen

opened up o unniciped exposue o egulion

h my seiously impc hei poposed cloud

opeing model.

accoding o KPMGs suvey o cloud povides1,

mos mjo vendos hve now sed o develop

hei globl complince mewoks, lgely o help

hem expnd hei ech ino new oeign mkes

nd highly eguled indusy secos. this my be

good news, picully o smlle ognizions h

my lck hei own inenl complince cpbiliies o

cloud.

Bu hough no ul o hei own, pogess hs been

slow om he cloud povides. theeoe globl

ognizions would be well dvised o ensue

hey undesnd hei povides globl complince

odmps ely on in he enggemen pocess,

egdless o whehe hey e doping public, hybido pive cloud soluions.

While pive cloud nd globl complince odmps

my mke hese legl nd eguloy consideions

esie o mnge nd mesue, he c emins

h ognizions need o fs undesnd how

cloud will impc complince coss ech o he

juisdicions hey opee wihin. and wih he pid

pce o eguloy chnge hese dys, developing he

cpbiliy o monio nd ec o chnges will be key

o uue poofng he cloud envionmen.

1 Breaking through the cloud adoption barriers, KPMG Inenionl, 2013


2013 KPMG Inenionl Coopeive (KPMG Inenionl), Swiss eniy. Membe fms o he KPMG newok o independen fms e flied wih KPMG Inenionl. KPMG Inenionl povides no clien sevices. all ighs eseved.


21/28


2013 KPMG International Cooperative (KPMG International), a Swiss entity. Member frms o the KPMG network o independent frms are afliated with KPMG International. KPMG International provides no client serv ices. All rights reserved.


22/28

How significant is the role of tax when making a decision to migrate

to the cloud?

3%

4%

16%

35%

40%

5

4

3

2

1

0% 10% 20% 30% 40%


Very

significant

Not at all

significant


The role of tax in the cloud

From liability to opportunity:

Getting strategic tax

advice should be a

critical step in the cloud

planning process.

Steven FortierPrincipal,

KPMG in the US

A high portion of respondents agreedthat the tax implications of cloudadoption play a role in the clouddecision-making process. However, it isinteresting to note that they also believethat their organization is appropriately

skilled to overcome the challenge ofuncertain tax implications.

three qurers o ll respondens o

our survey red he role o x in he

decision o migre o cloud s eiher

4 or 5 (ou o 5) in erms o signifcnce,

indicing brod recogniion h x

srucures my chnge s resul o

he dopion o cloud.

While respondens ended o poin

ou he shiing o It expendiure rom

cpil coss o opering expenses,

s well s issues reled o rnser

pricing, s he mos signifcn x

chllenges when deling wih cloud,

none o he idenifed x issues were

deemed o be especilly signifcn.

However, in our experience, here

coninues o be sizble disconnec

beween he business wreness o




23/28

The precise business structure o a cloud service can

make a signifcant dierence in the companys tax position.

Consequently we would advise that understanding the tax

position is an essential actor when planning a cloud service.

Deborah Green

Tax Partner,

KPMG in the UK

tax and its willingness to include the

tax department in the cloud planning

process.

It is concerning, thereore, that the

challenge o acing uncertain taximplications ranked among the lowest

o the concerns acing cloud adoption

within organizations, while, at the

same time, respondents were also

likely to rank their ability to manage tax

implications rather highly (a 4.03 on a

scale o 1 to 5).

How significant are the following tax issues?

1 2 3 4 5

3.23

2.96

2.83

2.81

2.74

2.60

Very significantNot significant

Shifting IT expenditure from capitalcost to current expense

Transfer pricing (challenges associatedwith new intercompany transactions)

Identifying tax incentives, credits, grants,

etc. associated with cloud investments

Determining source andcharacter of income

Indirect taxes such as VAT, sales tax, etc.

Determining taxable presence



2013 KPMG International Cooperative (KPMG International), a Swiss entity. Member frms o the KPMG network o independent frms are afliated with KPMG International. KPMG International provides no client serv ices. All rights reserved.


24/28

2 Tax in the cloud survey report, KPMG Institute, 2012

0

1

2

3

4

5

0

1

2

3

4

5

Retailers,

restaurants

Financial

services

Diversified

industrials/

manufacturing

Consumer goods

manufacturers

How skilled do you feel your organization is at overcoming these tax issues (identified on page 23)?(Using a scale of 1 to 5, with 5 being the highest)

4.254.67

444.33 4.25 4.17

3

4.17

Energy and

natural

resources

Food and drink

manufacturers

Technology Government/

public sector

Source: KPMG Internationals 2012 Global cloud providers survey.

Communications

and media


2013 KPMG International Cooperative (KPMG International), a Swiss entity. Member frms o the KPMG network o independent frms are afliated with KPMG International. KPMG International provides no client services. All rights reserved.

KPMG viewpoint: Making tax a strategic priority

Steven Fortier,Principal, KPMG in the USDeborah Green, Tax Partner, KPMG in the UK

On ace value, these results seem to show a remarkable

awareness o cloud-related tax implications by IT and

business executives. But according to a recent survey o

200 senior corporate tax proessionals in the US2, less

than hal o all companies include their tax department in

up-ront discussions on cloud initiatives.

The reality is that getting strategic tax advice rom

the internal tax department should be a critical step

in the cloud planning process. There are signifcanttax implications in how cloud service agreements are

contracted and structured that must be considered and

managed.

That the respondents were more likely to be concerned

about shiting IT expenditure to current expense and

possible issues related to transer pricing only reinorces

the act that tax specialists are oten not consulted

within the cloud decision making processes.

Our experience shows that business and IT leaders

are largely aware o how issues such as transer

pricing and current expense taxes work and thereore

tend to implicitly understand that these issues may be

challenges. But i you ask a tax proessional what the

biggest challenges are, they would likely point to issues

around indirect taxes such as VAT and sales tax or the

identifcation o tax incentives and grants associated

with cloud investments.

Take, or example, the question o whether the

contracting o cloud services results in a perceivedinvestment in land. I so, the organization may well be

subject to indirect taxes on that asset holding. Similarly,

the way that intra-group licenses are structured and

maintained may result in an unexpected VAT liability.

Business and IT executives tend to consider tax in the

cloud as a primarily compliance-driven issue that the

tax team can sort out once the contracts have all been

signed. In reality, the tax structure o the cloud service

can make a signifcant dierence in the companys tax

position, when it is approached strategically.


25/28

Conclusion



Our survey nds that the majority o organizations around the world have

already begun to adopt some orm o cloud (or as-a-service) technology

within their enterprise, and all signs indicate that this is just the

beginning; respondents expect to move more business processes to the

cloud in the next 18 months, gain more budget or cloud implementation

and spend less time building and deending the cloud business case to

their leadership. Clearly, the business is becoming more comortable with

the benets and associated risks that cloud brings.

With experience comes insight. It is not surprising, thereore, that the topcloud-related challenges acing business and IT leaders has evolved rom

concerns about security and perormance capability to instead ocus on

some o the nuts and bolts o cloud implementation. Tactical challenges

such as higher than expected implementation costs, integration

challenges and loss o control now loom large on the cloud business

agenda, demonstrating that as organizations expand their usage

and gain more experience in the cloud ocus tends to turn towards

implementation, operational and governance challenges.

Ultimately, this has led to an overall maturing o the market that can only

come rom experience: new lessons are being learned, best practices

and challenges are starting to emerge, and a body o knowledge is

starting to orm.

We hope that this report, particularly when combined with Breaking

through the cloud adoption barriers(our survey o cloud providers),

helps business and IT leaders to derive greater value rom their cloud

approach, strategy and adoption plans.


26/28

About the Survey

I l 2012, KPMG Iil, i pship wih Fbs

Isigh, cducd wb-bsd suvy 674 si xcuivs

gizis usig clud css 16 cuis ssss h sus

d impc clud dpi ud h wld. appximly

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57 pc ll spds idifd s It xcuivs d

43 pc s busiss xcuivs.

th suvy spd bd scp idusy scs icludig

Ficil svics (22 pc l spds), tchlgy

(19 pc), Divsifd idusils/mucuig (10 pc),

rils/sus (9 pc), Hlhc d phmcuicls

(8 pc), Csum gds mucus (6 pc), Fd

d dik mucus (5 pc), egy d ul sucs

(4 pc), Cmmuicis d mdi (4 pc), Gvm/

public sc (3 pc), n-pf (2 pc), acdmi

(1 pc), d oh (7 pc).

o h spds, 11 pc w m gizis wih

vus i xcss 20 billi US dlls (USD), 26 pc wih

vus bw USD1 billi d USD20 billi, 29 pc

wih vus bw USD500 milli d USD999 milli,d 34 pc wih vus bw USD100 milli d

USD499 milli.

Cuis icludd i his suvy w: ausli, Bzil, Cd,

Fc, Gmy, Idi, Isl, Ily, Jp, Chi, h nhlds,

Sudi abi, Sigp, h Uae, h UK, d h US.

Breaking through

the cloudadoption barriers

Clarity in the

Cloud

KPMGINTERNATIONAL

Breaking

through thecloud adoption

barriers

2012 Globalcloud providers survey

kpmg.com/cloud

Embracing the

Cloud

26 th clud ks shp

2013 KPMG Iil Cpiv (KPMG Iil), Swiss iy. Mmb fms h KPMG wk idpd fms flid wih KPMG Iil. KPMG Iil pvids cli sv ics. all ighs svd.


27/28

Acknowledgements

We wud ike hk he wig pepe hei vube

cibui his sudy:

a suvey espdes, Fbes Isighs, KPMG spsig pe

rick Wigh, Mkeig Diec i he US lesie Schie, u

exe wie Pee Schm, d he KPMG esech em i Idi.

KPMGs fms pes d picips wh pvided hei isigh,

icudig: Seve Sm, Shhed li, Geg Be, Seve Fie

d Debh Gee.

the KPMG Iei pjec em: J Wes, nie

Cuses, Mi omg, Sh P, Jeie Smue, d

ncy Be.

27the cud kes shpe

2013 KPMG Iei Cpeive (KPMG Iei), Swiss eiy. Membe fms he KPMG ewk idepede fms e fied wih KPMG Iei. KPMG Iei pvides cie sevices. a ighs eseved.


28/28

Contacts

Rick Wright

Global & US Cloud Enablement

Program Leader

T: +1 617 988 1163

E:[email protected]

Regional cloud contacts

Europe, Middle East & Arica

Bryan Cruickshank

T: +44 131 527 6640

E:[email protected]

Asia Pacifc

Egidio Zarrella

T: +85 228475197

E:[email protected]

Contributors to this report

Steven Salmon

KPMG in the UK

T: +44 118 9642152

E:[email protected]

Greg Bell

KPMG in the US

T: +1 404 222 7197

E:[email protected]

Shahed Lati

KPMG in the US

T: +1 408 367 7614

E:[email protected]

Steven Fortier

KPMG in the US

T: +1 312 665 1416

E:[email protected]

Deborah Green

KPMG in the UK

T: +44 20 73112509

E:[email protected]

The inormation contained herein is o a general nature and is not intended to address the circumstances o any particular individual or entity. Although we endeavor to provide

accurate and timely inormation, there can be no guarantee that such inormation is accurate as o the date it is received or that it will continue to be accurate in the uture. No one

should act on such inormation without appropriate proessional advice ater a thorough examination o the particular situation.

2013 KPMG International Cooperative (KPMG International), a Swiss entity. Member irms o the KPMG network o independent irms are ailiated with KPMG International.

KPMG International provides no client services. No member irm has any authority to obligate or bind KPMG International or any other member irm vis--vis third parties, nor does

KPMG International have any such authority to obligate or bind any member irm. All rights reserved.

The KPMG name, logo and cutting through complexity are registered trademarks or trademarks o KPMG International.

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