Published on the 16/05/2023 | Written by Heather Wright
Cloud is the force multiplier for business valuations, says Deloitte…
Investment in cloud migration, cloud native programs and related cloud cyber and machine learning services provide big bang for the buck, with cloud a force multiplier, driving enterprise value and enabling innovation.
Research from the Deloitte Center for Integrated Research found those types of cloud investments triple the value for market cap over three years, and double it short term, compared with cyber investments alone.
“Cloud investments relate to the most significant market cap increases,” Deloitte says. AI and cyber also contributed to positive valuations.
“Investments in cloud, AI and cyber all could pay off not just on the bottom line, but the top line.”
“This indicates that technology investments related to cloud, AI and cyber all could pay off not just on the bottom line, but the top line – and not just in the short term, but also in the long term,” the report, A Three-dimensional Tech Strategy, Enabled by Cloud, can drive Market Value, says.
“It also shows cloud investments are table stakes for organisations, including integrated cloud services such as AI, cyber and others to advance specific business strategies.”
The report comes from quantitative and qualitative analysis of financial data and business filings from more than 4,500 organisations and indicates investors consistently reward organisations for their cloud adoption.
“Cloud strategy often enables platform business strategies – and had the most positive relationship to market cap increases of the individual technologies analysed in this analysis.
“Additionally, using multiple methods, this research found that among six technologies analysed, cloud technologies drove high market value and enabled AI, cyber, ERP and IoT strategies.”
Unsurprisingly, just throwing money at the latest technology wasn’t enough, with ‘strategic investment’ the catch phrase for the report.
The report says companies can increase their enterprise value with a three-dimensional tech strategy, underpinned by cloud.
And the three value drivers?
Tech maturity; the extent to which an organisation has brough together related, functional technologies across its strategy; and the extent to which they have adopted and mastered a specific technology and related services.
Maturity matters – but don’t just modernise, innovate The report notes that moving off mainframe systems, modernising ERP strategies or using data and analytics to create new business intelligence are baseline for achieving value in both market cap and shareholder returns. They’re the fundamentals to a mature tech strategy with clear operational benefits and strategy enablement opportunities.
But the research says simply modernising might not be enough.
“Organisations may need to think differently to potentially see significant market value gains or losses, focusing for example on how their ERP implementations fit into a larger growth strategy and IT transformation vision.”
The value leaders are instead focused more on investing in and innovating with other technologies, such as AI, cloud, cyber, blockchain and IoT – and that’s resulting in them seeing up to three times the market cap of others.
It cites the example of a global consumer products company suing a combination of technologies such as AI, cloud, cyber and IoT to manage asset provenance across the supply chain to drive market value.
Supercharge with a platform focus The research found a focus on platform modernisation and/or innovation investments directed at improving the flow of information across an organisation and its ecosystem resulted in the highest increase in market caps, with 3x market cap increases.
The research looked at five ‘digital imperatives’ – experiences (optimising interactions with users), insights, platforms, connectivity and integrity (improving resilience, security, ethical tech and trust across all systems). While all bar connectivity, which was neutral, had a positive relationship to market valuation, platforms was the clear winner, with almost 3x the positive relationship to valuation compared with next placed category of insights.
“This underscores the importance that core modernisation, cloud migration and cloud native initiatives play in engineering advantage for your organisation,” Deloitte notes.
“While a solid platform technology strategy should be the backbone of any digital transformation, equally important will be thinking through how each of these elements can be integrated together in order to drive the most value possible.”
The cloud value Looking at individual technologies, Deloitte identified that cloud investments saw the most significant market cap increases, with AI and cyber also contributing to positive valuations.
The data indicates cloud, as a value enabler, could yield immediate value for organisations with regards to market cap.
“It also shows that as organisations leverage cloud native capabilities in combination with others they could see sustained value of time.”
There is, however, a caveat, with the report also noting that each of the six technologies looked at – cloud, AI/ML, blockchain, cyber, ERP and IoT – have gone through peaks and valleys in their relationships to stock returns based on media attention.
“A value- or results-focused technology strategy can make or break a digital transformation and the market value an organisation sees from its investments,” Deloitte says. “Leaders that fail to invest in innovation, think horizontally across technology categories and connect individual technology programs to strategic objectives may be mission opportunities to drive more market value.”
