The Revenue industry journey to cloud, why bother?
February 10, 2022
February 10, 2022
The journey to cloud for Revenue agencies is not a straightforward one. My previous blog outlined some of the major obstacles along the way. This time round I’m asking the question “so why bother?”. If cloud adoption is that challenging, do the potential benefits on offer make it all worthwhile?
The answer, in a nutshell, is yes. The reason why change is now imperative falls into two categories – compelling technology drivers and economic value.
The future state for software, tools, support and development is in the cloud. Bottom line: if you’re not there, life is going to get very challenging and costly indeed. It will also become increasingly hard to take advantage of new and emerging technologies and react to changing legislation and taxpayer needs at pace.
Another massive technology driver? Security. Concerns here are growing rapidly. And they’re being fueled by an inescapable fact: in the long term, agencies’ datacenters simply can’t access enough investment to build the security infrastructures they need to protect themselves in such a threat-rich world. Going into the cloud provides the protection of a far, far higher level of investment in security.
Look at the multi-billion dollar amounts that the hyperscalers pump into R&D every year. In 2020, for instance, Amazon’s R&D spend hit a massive $42.7 billion (up nearly 19% on the previous year). And a lot of that will have gone into cloud security. When agencies are in the cloud, they’re instantly getting the benefit of that investment.
Agencies need to get to the cloud because it’s a long-term imperative. It is also going to be a long journey. But what’s the economic value? Here, the argument for Revenue agencies is a little different from the classic argument presented for cloud in private sector organizations.
For banks, say, or retail businesses, it’s easy to imagine how as-a-service software (SaaS) can be deployed on a one-to-many basis. Because operations in these industries will be broadly similar wherever they’re based, a market of thousands of potential customers exists for cloud software providers in each domain. That means as-a-service is a cost-effective way to provide software. As it’s built and maintained to service many customers, it’s easy to see why this creates such an attractive return for software companies.
The Revenue industry isn’t like that, of course. The market (number of agencies) is much smaller. The scope, legislation and policies around tax, revenue and related benefits vary by country to such an extent that a common set of software cannot be as readily developed and the market for such software is small. There are too many nuances in the different taxation systems to offer a comprehensive suite of software to service their needs.
Certainly, some as-a service software can be successfully provided, like contact-center software which applies beyond the Revenue industry domain. But this is less true for core taxation systems. Although packaged software for core taxation exists, the classic commercial sector argument for as-a-service software is weaker because of the limited returns on offer to software providers in a much smaller marketplace.
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So, accepting that the ‘standard’ economics for SaaS adoption are not as strong for Revenue agencies, what are cloud’s economic advantages? The answer has three dimensions.
One is that agencies can realize major efficiencies by taking advantage of the infrastructure cloud provides. Because tools and capabilities like infrastructure databases, applications and operating systems are all cheaper in the cloud with the typical cloud pay-as-you-go model, we estimate a typical tax agency managing a cloud estate effectively might save between 20-30% on their operating costs.
Second, in the revenue world where a major proportion (I would say 80%) of IT investment goes into the development and maintenance of bespoke software, employing a ‘cloud native’ architecture will deliver faster, cheaper-to-build software. Applications are far less expensive (and easier) to build and maintain in the cloud. Productivity improvements of 20-30% are highly achievable using ‘cloud-native’ software development and maintenance – tightly integrated and highly efficient for use in a cloud environment.
Technical debt, the elephant in the room for most tax agencies, is also significantly reduced in the cloud. This is because the underlying tools and software on which applications are built are kept current by the cloud provider. Software languages, operating systems, database systems, and development & testing environments are all upgraded automatically and consequently developer skills are kept up to date. The impact? A much lower risk of being unable to find resources to support core revenue applications over their 20 to 30-year (sometimes longer) lifetime. The risk of software being unsupported to eliminated.
The bottom line: the ongoing currency of the technical environment is a major economic benefit of the cloud – both in terms of operational risk and application longevity. However, and crucially, this benefit assumes the revenue applications are built using ‘cloud native’ tools.
The third dimension of economic value is in the reuse of common SaaS applications to reinvent experiences. While this dimension is weaker overall than in the commercial sector, the adoption of a cloud provider’s collaboration and contact software provides a rich but familiar environment in which to create new ways of working and engaging taxpayers.
In the area of taxpayer engagement, for example, reusing cloud capabilities in call-center software, or maybe payments processing or handling digital identities, gives agencies powerful capabilities with which to rapidly reinvent approaches to work.
Overall, we estimate this ability to reuse and repurpose existing cloud capabilities could mean an increase of between 10-20% in organizational productivity. And that’s not all. Agencies also get a more familiar experience and the assurance that their applications are continually kept up to date.
Benefits from cloud arise in multiple domains. That said, they will only be realized by deliberately targeting and drawing on the strengths of cloud services. And doing this requires significant changes in how Revenue agencies procure (provision in cloud language!), operate and develop software and services.
Failure to understand the need for these changes – and to make them – will likely negate cloud’s economic benefits and could lead to an ever more complex and difficult-to-maintain IT estate. Thinking strategically about cloud now and continually evolving the agency cloud strategy is essential to obtain the benefits and avoid the pitfalls.
In follow-on blogs I’ll be taking a closer look at these changes and how agencies can start to introduce them. Meanwhile, thanks for reading and please get in touch to discuss cloud adoption and it’s benefits for tax agencies.
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