The Business Value of Cloud Computing
Joe Weinman, Author of Cloudonomics
Cloud computing, and related technologies such as big data, mobility, social, and the Internet of Things, represent a sea change in information technology which is one of the most important technologies transforming the spheres of business, society, government, and the economy. Yet all too often, the focus on the cloud is technological and qualitative, rather than business-oriented and quantitative. Without a clear delineation of business benefits, technologies are ultimately doomed to irrelevance. Without quantification, all that remains is vendor hand-waving and supposition.
Who stands to benefit and how
Correctly characterising the business value and benefits of cloud computing and IT is an imperative for multiple sectors. For businesses considering adoption or growth of cloud initiatives, quantifying benefits leads to appropriate allocation of capital and executive attention. Moreover, IT’s contribution to competitiveness via corporate strategy alignment is important in firm competitiveness, regional competitiveness and growth through job creation, infrastructure development, ecosystem clusters, etc., and thus guiding economic and regulatory policies.
Business models and sustainable services
Every vertical has different requirements and IT intensity, and within verticals, firms can be differentiated along a variety of axes. However, a useful model for consideration of cloud- and IT-based strategies is an extension of the Value Disciplines model formulated by Michael Treacy and Fred Wiersema. They argue that companies can strategically differentiate based on Operational Excellence, Product Leadership, Customer Intimacy, to which we can add Accelerated Innovation. There are many variations of these strategies, which can be elucidated through an approach such as the Business Model Canvas. These strategies can also often be applied to national or regional objectives. Cloud computing specifically and IT generally can invigorate these approaches.
Operational Excellence can benefit from the use of big data, mobility, and computing. For example, consider the use of data for process improvement, smart grid solutions to optimise electricity utilisation, or solutions to optimise physical logistics while maximising customer satisfaction.
Product Leadership can be enabled by the cloud and IT as well. Today’s highly digital products can be digitalised and informationalised, and tied back to cloud-based services. Obvious examples include tablets and smartphones, which link back to cloud services such as app stores or functions such as search and social networking. Less obvious ones include connected cars, which link back to concierge, navigation, and entertainment services, wearable computing and biosensors, which may connect to healthcare or personal transformation services.
Customer Intimacy is shifting from an organisational approach to an IT-mediated approach. In many sectors, rather than personal relationships and dedicated account teams, mass personalisation is enabling relationships at scale. Moreover, retailers, social networks, and entertainment firms are now using big data and sophisticated algorithms to increase revenues via upsell, cross-sell, and reduced churn, while also maximising customer value through effective recommendation engines.
Accelerated Innovation is being supported by contests, crowdsourcing, open source, and idea markets; all cloud-mediated. While the basic concepts date back exactly 300 years to the “Longitude Prize”, today such markets and contests enable virtually anyone anywhere to contribute insights and creativity to solve problems. Even in the absence of a formal prize, access to information can open the floodgates of creativity broadly: consider the case of Jack Andraka, a high school teenager who may have developed a test for pancreatic cancer thanks to research he conducted on Google and Wikipedia. His technique may reduce the cost of testing by a factor of 26,000.
Joe Weinman, Cloudonomics: The Business Value of Cloud Computing (John Wiley & Sons, 2012).