Much has been written about the technology aspects of cloud computing and its game-changing service characteristics. But focusing only on technology and service aspects of the cloud ignores the fact that cloud computing is in actuality more of a disruptive business model than just a combination of technology changes.
By changing the potential speed of IT services provisioning from weeks to hours and reducing the cost of investment through on-demand self-service, cloud computing promises to transform the competitive advantage a business can have. Companies large and small may be able to quickly jump-start new initiatives and enter new markets because cloud computing offers reductions in time and a low cost of entry, thus allowing them to leapfrog the competition.
Mark Skilton is currently Global Director responsible for applications strategy and service offer development for Capgemini Global Applications Outsourcing Services. He can be reached at [email protected].
Transformation in an Industry Caused by Cloud Computing
An example of how cloud computing is transforming industry can be seen in many supply chain oriented markets. Take, for example, the pharmaceutical or telecom markets. When using a Industry-Services-in-the-Cloud model, a small-to-medium sized enterprise (SME) can access and compete in areas where larger companies once had incumbent control due to ownership of assets and services.
Pharmaceutical research providers can use computing resources for medical trials from a cloud provider to compete with larger competitors without the necessary capex investment from owning expensive processing resources. In the telco sector, small application service providers can offer on-demand application services as part of a Platform-Service-in-the-Cloud.
The barrier to entry and service delivery is lowered because they can piggy-back within the same service channel using the cloud interfaces and a “storefront” of catalog services to include their own services as well as those of larger providers. This means that there are lower switching costs via self-service portals and third-party cloud service providers because people can choose self service over other general traditional services
In this sense an Industry-as-a-Service model is very real. Companies considering this model will need to identify the metrics and areas of how their value chain is changing in their marketplace.
Critical Success Factors of Cloud Computing
The largest advantage of cloud computing thus far has been the increase in speed to market and new services and in lowering the investment and access barriers to these services for both buyers and consumers, as well for as vendor providers and systems integrators. Additional critical success factors (CSFs) for cloud computing include:
- Lowers the asset investment threshold: Companies can avoid capex and enhanced utilization when buyers and consumers use third-party cloud services, therefore avoiding the need to invest in their own capital assets.
- Lowers switching costs via self-service: Self-service and alternative channels of service open up as Web sites and portals on premise and mobile cell networks enable wider access and choice of IT services for business and IT.
- Lowers access to services barriers: The speed of procurement increases through access to on-demand services that have the potential to change the location of risk responsibility from internal to external providers.
- Removes intermediates (or creates new intermediates/aggregators/brokers): Business can go direct to gain convenience and leverage existing and new services.
- Lowers the innovation access barrier: IT services can be refreshed faster and more frequently.
- Increase growth potential: Additional sources of revenue can be enabled and exploited through both existing and new market access, providing new growth potential for businesses using cloud access and services.
- Increase speed and transformation rate of change: Companies realize faster cash flow from cloud service usage arbitrage (pay-as-you-go versus capex investment), reduce the burden of financial commitment, and improve marketing and personalization of services. Organizations should look to bundles and new ways of service delivery in the cloud to reach and build average revenue per user (ARPU) or average revenue per minute (ARPM) measurements of consumers and markets.
But often, putting the business case together to address the overall business goals can be complex when comparing different cloud services and understanding how these can be linked to real business goals. Improving utilization efficiency through virtualization is only half the story. Many other areas of business opportunity are opened up when we consider how the improved efficiencies and performance that cloud offers can be brought into focus on real business opportunities.
Where Do You Start to Define Cloud ROI Metrics for Competitive Advantage?
What organizations need when evaluating cloud is a set of business metrics that can identify where competitive advantages can be applied to their individual businesses. Organizations can identify projects and service initiatives and measure these against the critical success factors they seek from cloud computing adoption. The table below illustrates the metrics and example solutions that organizations can target to build competitive advantage through success factor levers.
The following are eight business metrics that can be used to measure the benefits of cloud computing when applied to your organization. The matrix shown here also illustrates how these metrics can be linked directly to critical success factors for cloud computing.
- The speed and rate of change: Cost reduction and cost of adoption/de-adoption is faster in the cloud. Cloud computing creates additional cost transformation benefits by reducing delays in decision costs by adopting pre-built services and a faster rate of transition to new capabilities. This is a common goal for business improvement programs that are lacking resources and skills and that are time sensitive.
- Total cost of ownership optimization: Users can identify cloud services that enable them to select and configure a service that can be from a standard catalog or parameterized to offer a level of customization to meet their needs. Because the cloud service is “designed to run on the Web” provisioning from a catalog style service means it should be ready to provision and run within minutes or hours from selecting the service. Traditionally this has often been decoupled when IT projects are handed off to production services. In cloud computing environments, these are joined up.
- Rapid provisioning and de-provisioning: Resources are scaled up and down to follow business activity as it expands and grows or is redirected. Provisioning time compression can go from weeks to hours.
- Increased margin and cost control: Revenue growth and cost control opportunities allow companies to pursue new customers and markets for business growth and service improvement.
- Dynamic usage: Elastic provisioning and service management targets real end users and real business needs for functionality as the scope of users and services evolve seeking new solutions.
- Risk and compliance improvement: Cloud computing’s green capabilities can be leveraged through shared services.
- Enhanced capacity utilization: IT avoids over-and-under-provisioning of IT services to improve smarter business services.
- Access to business skills and capability improvement: Cloud computing enables access to new skills and solutions through cloud sourcing on-demand solutions.
Often putting the business case together to address the business goals can be complex when comparing the different cloud services and understanding how these can be linked to real business goals. Just improving the utilization efficiency through virtualization is only half the story; many other areas of business opportunity are opened up when we consider how the improved efficiencies and performance of the cloud can be brought into focus on real business opportunities.
When companies can identify the competitive advantage goals that relate to their specific business strategy, they can begin to define the metrics needed to benchmark and measure cloud ROI benefits. Because cloud computing promises to transform the competitive landscape of an industry marketplace with lower access barriers, it is both a real opportunity today and a source of change and potential upheaval in your industry.
A full copy of the Cloud ROI paper written is available here.
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