Along with all new technology the advent of cloud computing is creating new opportunities and challenges for IT management.
Without a clear strategy to understand the trends and secure the advantages, organisations are reducing their competitive advantage in relation to their peers.
The IT cloud environment
Along with the dramatic growth of cloud computing there has been a seismic shift in the proliferation of cloud based business solutions providing easily accessed services, in a scalable and on-demand way.
This growth is creating strategic opportunities for both providers and service users. New players are appearing and offering better, easily targeted, integrated services and the market is growing every day.
As an example withn the last few years Salesforce.com has ridden a wave of demand for integrated ‘cloud service provision’ and are now the world’s largest provider of Platform as a Service (PaaS) solutions at 24%.
The UK public sector is also following this global trend. The UK Government has been opening up the ability (with an impressive total annual IT spend of over £4Bn) to directly access cloud services through its cloud store and wider digital initiatives. www.digitalmarketplace.service.gov
Global Cloud Spend
On a global scale worldwide spending on enterprise application software reached £103Bn during 2015, with a forecast increase to more than £139Bn by 2019, all being driven by accelerating cloud adoption driving new software sales. Goldman Sachs recently forecast that firms will increase the cloud infrastructure and platform market by 19.62% from 2015 to 2018, reaching £30Bn by 2018.
A Gartner analysis of enterprise software spending indicated that ‘alternative consumption models’ (to traditional on-premises licenses) are now accounting for more than 50% of new software implementations. This spend includes; SaaS, hosted license, on-premises subscriptions and also open source. Gartner research also predicts that by 2020, about a quarter of all organizations in emerging regions will run their core CRM systems in the cloud, up from around 10 percent in 2012. Source: Gartner Says Modernization and Digital Transformation Projects Are Behind Growth in Enterprise Application Software Market.
To summarise: growth in cloud adoption is being embraced by organisations worldwide and is expected to grow.
- Almost half of all mid-sized US organisations expect adoption of cloud applications to create the greatest productivity gains for their firms.
- If these productivity gains are realised, and read across globally, cloud adoption will be a must if firms want to gain competitive advantage stay ahead of their peers.
Cloud Computing Opportunities
What strategic opportunities can this wider market disruption present to IT Managers and leaders?
Cloud IT Productivity gains
Survey carried out by Deloitte of mid-market US firms in 2015 (£50m to £500m revenue) identified that within 43% of organisations, cloud applications were seen as technologies with the highest potential to produce the greatest productivity gains. Whilst 63% said they already either had mature deployments, or were in the process of deploying cloud applications. deloitte-appendix-disruptionin-mid-market.pdf
Cost reduction and the commoditised cloud
For new software providers, the barriers to market entry are being broken down by using the cloud to deliver their software.
New players both strategic and small are entering the market creating a more ‘commoditised’, landscape. As with any market disruption, these new providers are searching for market share which means competition will inevitably drive ‘licence’ acquisition and user costs down.
This ease of service access, and market disruption, also drives the potential for commoditisation and existing service disaggregation.
It shakes up the Information Technology landscape, not only within how digital services are being consumed, but also how new, innovative, market entrants are providing these services.
The opportunities that this ‘market driven’ situation creates is becoming clear. The ability to buy and pay for only what you consume, and no more. Whilst using a cost per use model when managed correctly will considerably reduce an organisations technology costs.
Any ability to ‘ditch and switch’ also reduces ‘supplier lock-in’ and ‘licence cost creep’ whilst improving flexibility and competitive advantage.
Cloud service disaggregation
Yesterday enterprise scale technology software and services were the remit of a few major service providers, delivering a one size fits all enterprise software solutions.
Whilst this model still exists (and no doubt will suit some organisations), an opportunity to disaggregate and integrate services that service commoditisation and cloud integration brings means that enterprise wide solutions, can now be ‘accessed’ in smaller and smaller ‘chunks’, on a multiple service agreements and then ‘swapped out’ as improved, more easily consumed, solutions become available.
Cloud based IT and the business
The savvy forward looking organisation has now realised that the flexibility these market changes introduce now deliver a real competitive advantage.
That advantage is no longer about how effective your IT management is at keeping the lights on, but rather how well does your overall digital user strategy, integrate with your cloud based solution sourcing ability, and how well do these internal activities take consideration your overall business architecture strategy and your service delivery plan.
Will effective cloud service operations drive customer demand?
A recent study by the Economist Intelligence Unit found that the more experienced an enterprise is with cloud computing, the more likely they are to rely on cloud-based apps and platforms to boost their customer demand strategies. It’s a case of cloud service operations expertise driving business wide customer growth.
The study in conjunction with IBM found that the most cloud-mature enterprises invest the heaviest in expanding their sales channels (39%). Conversely low cloud maturity enterprises are fixated on improving internal business-process efficiency (41%) and reducing costs and/or liabilities (38%). These cloud mature businesses are not only the big boys, but more up-and-coming pretenders who are intend to secure wider market share and grow.
If you are not cloud you are losing competitive advantage
Clearly inward looking organisations are not seizing the competitive advantage that digital market disruption is providing, that their competition is securing, or the securing the opportunities that the external environment is providing. Source: Mapping the cloud maturity curve: Measuring organizational excellence in the new era of IT.
In summary these findings indicate that if organisations are not focused on the emerging ability of cloud solutions to drive market share they will lose that competitive advantage to others.
The organisational challenges of moving to the cloud
Many organisations are still running a traditional ITIL based IT service delivery function but the world has moved on. The old approach, is inward looking, and locked into an out dated build and configure it approach to the service delivery. Subsequently the traditional IT organisation can’t take advantage of current market disruption and external market forces to drive down service acquisition and delivery costs.
As a ponderous follower, and not a potential leader of business strategy, the traditional IT function finds it difficult to form into a new commercial style of service operation to support the wider business. As a follower its not a cloud sourced, resilient, integrated, source and provide organisation.
Taking advantage of this new digital market calls for new operational models, new skills, and a different knowledge set.
As an example when responding to a Gartner survey, apart from cloud service integration, not surprisingly 100% of mid-market US firms stated that that their second most important cloud issue ‘is their ability to manage multiple cloud suppliers’.
The impact of the cloud on service users
As availability and innovation increases the ability to switch software applications creates a problem for service users but this problem may reduce over time. In the past service users of enterprise solution software would learn to use bespoke software on the job.
The expectation within organisations was that software applications would not be replaced. New software meant wholesale, expensive programmes of change, new training, and even potentially new people.
That situation is beginning to change driven by the non-business world and the proliferation of ‘apps’ people use in their personal lives. Today, staff constantly move across new platforms, using new and different software ‘apps’ for different tasks, ditching and switching when it becomes useful or in their interest to do so, thus these applications become more intuitive, user friendly and easier to use.
If this change is happening to personal technology now, then workspace app provision will catch up. Super users are out, and business applications with ‘intuitive ubiquity’ will increase.
Other areas for IT management consideration
Whilst the cloud is supporting strategic level business drivers, there are also the technical operations areas that cloud is reshaping;
- Disaster Recovery can be outsourced and supported in an easily procured manner.
- Patches and updates can be left to your cloud service provider.
- Collaboration ability can be enhanced using the ability of cloud connected services to connect mobile and ‘working anywhere’ staff. Collaboration can be maintained, whilst also reducing the costs of supporting ‘built environment’.
Security in the cloud
When it comes to cloud many organisations have security concerns. Concerns over their own and their client data; where is it held, is it off shore? ‘what happens if’? concerns over boundary control, and malicious access.
Service providers and architects are beginning to realise the potential risks that cloud use can create. These concerns are driving an approach to hybrid cloud architecture solutions. Risk areas such as client data, are being retained under internal control, whilst using the cloud to provide services where security risks are less pronounced.
Whether this hybrid trend will continue is hard to say. Some commentators suggest that the cloud is no less secure than onsite data centres and only time will tell if that is indeed the case.
A summary of cloud strategy and trends
- Cloud use can enhance competitive advantage by boosting productivity.
- Your competitors are focused on the productivity advantages that cloud brings.
- The more experienced an enterprise is with cloud computing the more they rely on cloud-based apps and platforms to boost customer demand.
- Cloud market disruption and pay per use market competition has driven down costs.
- Innovation in service provision is essential and technological innovation is expensive.
- With the low barriers to entry the cloud service market is awash with competition driving innovative solutions.
- There is little business wide innovation within traditional ICT service delivery.
- Existing service delivery models will need to change with a requirement for new enterprise wide skills and expertise.
- Service providers worry about integration.
- Manage the supply chain not the technology.