Will the cloud have as big an impact as many predict? A complex question. Cloud computing is available now; it’s already changing the manner in which IT and business services are delivered and managed. But as is often the case with new technologies, organizations may overestimate the short-term effects while simultaneously underestimating the long-term benefits. Without understanding the larger wave of IT developments of which the cloud is just a part, companies may invest in capabilities that will not pay off sufficiently—potentially compromising their competitiveness as time goes on.
New research from the London School of Economics and Accenture—based on a survey of 1,035 business and IT executives, as well as in-depth interviews with more than 35 service providers and other stakeholders—finds that the cloud will have a strong near-term impact on the majority of organizations. Twenty percent of respondents are already using cloud capabilities for a variety of services, including corporate email, websites, storage and customer relationship management. Similar numbers plan to make the transition in the next 18 months—a doubling of cloud usage in a very short timeframe.
From cost to innovation: Three major impacts
Near-term investments in cloud computing will be dominated by a cost perspective, using cloud-based services to drive efficiencies and cost reductions. As time goes on, however, developers as well as users will be inexorably moving toward benefits that are not only about costs but also about innovation.
Two-thirds of business and IT executives participating in our survey see the cloud as a business service and an IT delivery model that drives innovation in organi¬zations. Half of the executives see it as a new technology platform that can transform organizational forms. The cost benefits are certainly a dominant part of the executive perspective. But about half of business executives also see the cloud as a way to gain access to innovative, best-in-class applications with the potential to transform the business.
On a larger canvas, our research points to three primary impacts of cloud computing over the longer term: a radical shift toward service performance; a move from products to business services; and a transformative reconfiguration of the supply industry.
Impact 1: The importance of the customer experience
Cloud will escalate the importance of delivering effective service—the quality of the customer experience—as a differentiator of suppliers in the external IT and business services industry. That, in turn, will change the character of the technology supply industry. As customers become more savvy, their expectations are rising—meaning that IT and business services must raise their level of service competency, adopting a 24/7 focus on availability, security and quality.
One of our executive interviewees, Wolfgang Feisst of SAP, underscores this point: “Today, we deliver a service that needs to run from the first time on. That means that every hour, day by day, we are faced with customer needs, and that means that a vendor must be able to deliver high levels of customer service.”
In this competitive environment, a customer’s service experience will be one of the keys to success, yet few cloud companies are currently focused on the metrics that could enable them to assess their service capabilities and improve them. Quantity, performance, value and quality are the four most important metrics. However, “softer” metrics—characteristics such as responsiveness, assurance and empathy—will become increasingly important in the new business and IT environment.
What matters with the cloud is not just what the service organization does but what the customer actually experiences, and that increases the importance of delivering on a service quality promise. A CEO we interviewed put the matter succinctly: “I am moving to only two sets of metrics: customer satisfaction and key business performance indicators.”
How can cloud providers correct their existing service deficiencies? One important step is to import knowledge and skills from other more service-focused industries in terms of people and practices. Many companies need new operating models to enable them to become truly customer-centric—to back up customer strategies with the integrated sales, service and support functions needed to make good on those strategies. They also need to put in place the auditing capabilities to help them understand their current levels of service from the customer’s perspective.
Impact 2: The shift from products to services
The second long-term impact of cloud computing involves the shift from IT-based products to business-oriented services. Although this trend has been present for some time, cloud computing is dramatically accelerating the shift. So we see an increasing presence of services such as Microsoft’s Office 365: instead of needing to buy and maintain software for every PC in the organization, companies now have access to always-updated office software through the cloud.
Another example comes from Qantas Airways, which replaced its 22-year-old Fortran-based system with a cloud-based computing platform for its Frequent Flyer program. The cloud has given the airline a scalable architecture that can cope more effectively with rapid changes in demand, providing more consistent service to its 7 million members while also dealing with rapidly growing activity. Qantas also sees the new platform as providing the opportunity to target loyalty promotions and extend its loyalty program by introducing new partners—something that would have been difficult with the older system.
How fast the cloud accelerates this trend toward IT-based services depends on two things. The first is the degree to which clients and suppliers can work together to identify the new business service possibilities created by the imaginative deployment of cloud-based technologies, and then deliver on them. The second factor is the role of service integrators in configuring hardware, software, cloud capabilities and cloud suppliers into new value propositions—simplifying, standardizing and commoditizing technology and supplier complexity into offerings that can be experienced as relatively straightforward business services.
Impact 3: Reconfiguration of the supply industry
How will the cloud computing model affect the traditional IT and business process outsourcing industry? Far from the cloud being a harbinger of the “death of outsourcing,” we expect a significant increase in the use of external service provision, resulting in a much smaller internal IT function.
This scenario is based on the likelihood of an increasingly diverse and dynamic supplier community, organized along three principal value trajectories to manage different levels of complexity:
- A relatively small group of bulk providers of utility and platform services such as storage, processing and email. In accord with the utility metaphor, these compa¬nies will be akin to power stations, supplying the raw computing power for most enterprise applications as well as the ability to scale up or down as needed.
- A much larger group of specialist providers with distinctive industry expertise (such as banking, manufacturing and retail) or functional skills such as HR, sales and CRM. As they become more sophisticated, these companies will move beyond today’s software-as-a-service capabilities to provide entire business processes as a service.
- A more elite group of service integrators with deep consulting and technology skills that will partner with enterprises to design, manage and continuously optimize the comprehensive services ecosystem.
Conclusion: Becoming a cloud corporation
At its highest level of impact, cloud computing is ushering in an era in which enterprises themselves will become virtual. Corporations will manage complex ecosystems of cloud providers, IT suppliers and business process outsourcers as well as a host of other parties, both internal and external.
This is another reason why the ability to provide innovation, and not just cost reductions, will be critical to competitive differentiation in the IT and business services industry. Customers are becoming much more ambitious about wanting not only IT operational benefits from the cloud, but also business process and market innovations. These will only be possible by tapping more effectively into brain power, wherever it exists in the supplier and solutions ecosystem.
About the Authors
Professor Leslie Willcocks, Dr. Will Venters and Dr. Edgar A. Whitley are in the Outsourcing Unit of the Department of Management at the London School of Economics and Political Science.
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