Cloud Computing Can Drive Business Value, Report Says

By | Apr 6, 2012

Not long ago, cloud adoption was relegated to a few technology-savvy organizations comfortable with being on the cutting edge, but this has changed rapidly. Cloud computing's ability to lower technical adoption complexity and costs and decrease time frames has made it attractive to organizations of all types and sizes. However, a recent report by the IBM Institute for Business Value and the Economist Intelligence Unit suggests the way businesses use the cloud is about to evolve even further.

The report, The Power of Cloud: Driving Business Model Innovation, which included responses from 572 business and technology executives, found that organizations are beginning to realize the potential of the cloud extends far beyond technical and operational efficiency. According to researchers, this shift in perception is due to six key business enablers provided by the cloud that are impacting innovation inside and outside of the information technology (IT) department: cost flexibility, business scalability, market adaptability, masked complexity, context-driven variability, and ecosystem connectivity. The study predicts that in the next few years, these characteristics will help the cloud evolve from its role as a pure IT tool to become a tool for business growth and change.

The first three business enablers--cost flexibility, business scalability, market adaptability--are related to the cloud's unique ability to reduce constraints to business innovation. The cloud's pay-per-use model, which creates cost flexibility by reducing fixed costs and enabling companies to pay only for what they consume, and its ability to allow companies to rapidly adopt new technologies to meet changing market conditions can give businesses the flexibility to rapidly grow and change business models. Beyond flexibility and adaption, researchers also identified the cloud's power to mask complexity as important for business innovation; it allows organizations to expand the sophistication of its products or services without increasing complexity for the end user, which can make offerings more attractive.

Content-driven variability and ecosystem connectivity were the final cloud-driven business enablers. Content-driven variability relates to the cloud's capacity to store large volumes of information that can be used to personalize a user experience. Ecosystem connectivity describes cloud computing ability to facilitate external collaboration. These benefits enable businesses to provide cohesive user experiences and share information with less effort and cost.

Leaders should look beyond the IT department and carefully evaluate the opportunities to leverage the power of cloud to optimize, innovate or disrupt their business models. However, organizations differ, so it is important that each organization finds the right opportunity for their strategy, risk profile, and competitive landscape. IBM and Economist researchers recommend that organizations:

  • Establish shared responsibility for cloud strategy and governance across the business and IT to help ensure the cloud remains a top business priority
  • Look within and beyond their organization's borders to maximize the value derived from cloud adoption by determining how the cloud can impact their industry ecosystem and using the cloud to respond to industry customers more effectively
  • Determine if their organization will use the cloud to be an optimizer, innovator or disruptor and develop a plan for evolving their business to meet the goal. Optimizers want to use the cloud to expand their value by making small changes to improve products, services and operational efficiency, without introducing the risks associated with a radical business change. Innovators desire for their cloud strategy to substantially transform their competitive position within their industry and introduce new market opportunities. Disrupters want to leverage the cloud to create entirely new markets and industries or radically disrupt.

Although the cloud has become mainstream, organizations are far from exhausting its capabilities from a business perspective. With a more holistic view, the cloud not only improves technical proficiency--it can become a true business differentiator.

Some businesses have already began adopting cloud based services in various business units to solve specific problems. Organizations should not interpret the study recommendations as an endorsement of uncontrolled, departmental adoption of cloud services. Although many of the technical details are managed by cloud service providers, factors like security/privacy, integration, and supportability should be reviewed and guided IT.

For the best chance at success, organizations should establish a formal decision framework for selecting cloud services. Otherwise, they risk creating a tangled web of redundant, incompatible, and poorly implemented tools. This isn't just a matter of technical design or implementation. Privacy challenges, data breaches and lack of legal or regulatory compliance can all be issues if organizations adopt a cloud service without fully understanding the contractual details. It's critical for organizations to understand and formally document requirements and expectations for cloud services or dreams of cloud success can quickly become a nightmare.

This post was written as part of the IBM for Midsize Business program, which provides midsize businesses with the tools, expertise and solutions they need to become engines of a smarter planet.

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