Cloud Computing Can Drive Business Innovation

Cloud is an enabler of new business models, but too many companies are just experimenting or improving existing processes and not taking full advantage of the technology, says IBM.

Charles Babcock, Editor at Large, Cloud

February 10, 2012

5 Min Read

Cloud computing is assumed to be an IT staff initiative at most businesses. But business strategists at IBM have concluded that it needs to be a top management priority.

Too many companies are experimenting lightly with cloud computing. They're using it to tweak existing operations, as opposed to thinking about how it could revise or re-invent the fundamental way they sell their goods and services, said Saul Berman, global strategy consulting leader in IBM's global technology services.

Berman based his remarks on a survey conducted by the Economist Intelligence research unit of the Economist magazine in the fourth quarter of 2011, based on interviews with 572 business and IT managers. IBM sponsored the survey, which will be released later this week, titled The Power Of Cloud: Driving Business Model Innovation. InformationWeek was given an advance look at its contents.

IBM strategists conclude that the cloud is an enabler of new business models, and all parts of the business, from the boardroom and CEO's office, down to the loading dock, should be re-thinking what they do in light of the cloud's capabilities. Accenture applied that thinking last year to technology companies; it said cloud technologies allowed them to rethink their business models and adopt new ways to expand their business.

[ Want to learn more about how Accenture said cloud computing changes business models? See Accenture: High Tech Firms Need Multiple Business Models. ]

"Although cloud is widely recognized as a technology game changer, its potential for driving business innovation remains virtually untapped," concluded IBM's summary of the survey results.

Many companies are using infrastructure as a service from public cloud suppliers or building out experimental, self-service, virtualized sections of their own data centers. But only 13% have "substantially implemented" cloud computing throughout the organization. "I don't think too many companies in the U.S. fall into the category of having 'substantially implemented' cloud computing," said Berman, the study's author, in an interview. In three years time, however, that figure will increase to 41%, the survey concluded.

Top management still tends to believe that cloud computing is a technology specialty best left to the IT department. "The CEO might ask, 'I've heard of it, but why do I need to be focused on the cloud? Isn't that something for IT to do?' But the power of the cloud goes beyond IT," he said.

At the same time, the study illustrated how some firms have seized on cloud computing to transform their business. Etsy is an online marketplace for handmade goods. It uses cloud-based analytics to analyze the one billion page views that take on its website each month, then make recommendations to visitors.

"Using cloud-based capabilities, the company is able to cost-effectively analyze data" and use the results to build its business of bringing buyers and sellers together, the study concluded. Netflix migrated its movie and video streaming service out of its own data centers and into the Amazon public cloud because it could better cope with "large surges of capacity at peak times," allowing the company to grow its customer base without being constrained by its data center capacity, the study observed.

Xerox introduced Xerox Cloud Print, a service that allows a user to print a document with a nearby printer, wherever they might be. Accomplishing the task would be complicated for users to solve on their own, but Cloud Print can mask the required data management and temporary file storage behind an easy-to-use interface. By masking complexity, "a company can expand its product and service sophistication without also increasing the level of user knowledge necessary to utilize or maintain the product," the study concluded.

Cloud computing also allows businesses to adapt products and services to "context driven variability," or changes in the nature of the service due to the user's location and activity. Apple iPhone's Siri uses artificial intelligence to learn about the user and his or her contacts to understand what a user is saying, then come up with an appropriate response. Things it can do include sending messages, scheduling meetings, placing phone calls, and finding restaurants. It leverages cloud resources and applies them to an individual context, allowing Apple to invent new uses of the smartphone, it concluded.

Businesses that understand cloud platforms that can bring together disparate business stakeholders and get them to collaborate may also expand their business models. HealthHiway is an example of a healthcare ecosystem that brings together providers, patients, payers, practitioners, and third-party administrators to create a new ecosystem that functions more effectively. It connects 1,100 hospitals and 10,000 doctors, who employ information sharing to deliver better service, the study concluded.

As more businesses adopt cloud computing, they will find they have a choice of tweaking existing goods and services to improve the business; developing new operating capabilities that transform the business; or disrupting existing patterns in their own operations and their competitors to create new value chains, changing their industry's economics.

"I'm a strategy guy," said Berman, rejecting the first two options. "With cloud there may be many possibilities to create an entirely new offering" instead of just incrementally improving an existing business, he said.

Most business managers are thinking of cloud computing as simply a variation on traditional IT services. "There's a broader opportunity here for business model innovation," he said.

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About the Author(s)

Charles Babcock

Editor at Large, Cloud

Charles Babcock is an editor-at-large for InformationWeek and author of Management Strategies for the Cloud Revolution, a McGraw-Hill book. He is the former editor-in-chief of Digital News, former software editor of Computerworld and former technology editor of Interactive Week. He is a graduate of Syracuse University where he obtained a bachelor's degree in journalism. He joined the publication in 2003.

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