A commonly held belief is that cloud computing—a utility model for computing capacity, software and business functionality—is a phenomenon whose value resides primarily in reducing IT costs. In fact, the flexibility that the cloud makes possible for infrastructures, services and processes means that it is also capable of driving significant innovation.
This is a key finding of 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.
The innovation trajectory of the cloud will be cumulative. Beginning first with technology and operational changes, its effects will then be felt at the business process level, changing the way companies operate and serve customers. It will be capable of delivering market innovations that enhance existing products and services, create new ones and enable entry into new markets. Finally, the cloud will support new ways of designing corporations themselves.
Reducing the friction: Operational innovation
One of the key ways that cloud computing supports operational and technological innovation is by moving an organization more briskly through the experimental or prototyping stages—or, as some of our interviewees put it, by “reducing the friction” of development. In a cloud model, companies acquire processing, storage or services when they need them, then can quickly decommission those resources when they are not needed.
Such a model supports “seed and grow” activities and faster prototyping of ideas. With traditional IT models, a decision to prototype a new system generally involves the procurement and installation of expensive hardware, with the associated checks and delays that conventional purchasing requires. Cloud provisioning, on the other hand, can be implemented rapidly and at low cost.
That means the cloud can also reduce the risks of operational innovation. Projects and processes that would have been too risky to attempt if they required a large capital investment become worth attempting if unsuccessful experiments can be decommissioned easily.
Language of the business: Process innovation
A distinctive feature of cloud computing is its ability to hide the technical complexity of solutions. The acquisition and deployment of IT becomes almost secondary. Companies are actually deploying a process or service, and that means business and IT executives need no longer try to communicate across a technology gap. They can speak a common language about what the business seeks to do and how it intends to do it.
Steve Furminger, group chief technology officer of global digital marketing agency RAPP UK, underscores this point by noting that the cloud is providing his company with the ability to produce solutions more rapidly without needing to be concerned at such a detailed level about how they are going to do it from a technical perspective: “Just a few years ago, that was a massive concern. Now we can almost forget the technology and just think in terms of what we want to do from a business perspective.”
To illustrate this point, consider an organization’s desire to innovate within its processes and technologies related to sales support—the ability to track contacts, manage and convert the sales pipeline, and generate revenue. With older models of IT solutions, a company would be restricted to particular packages or platforms—forced, in other words, to change its processes to match the software. With a cloud model, companies can think about processes at a level that is more detailed and personalized to their individual needs, but the solution will not need to be customized in older, prohibitively expensive ways. The company could provision a combination of software as a service for sales, along with an enterprise system or financial management system. Sales personnel could have access to specialized sales support over the cloud.
This ability to envision new combinations of cloud-based solutions and create new ways of performing end-to-end processes presents companies with new opportunities to be innovative in new-product development as well as in service and support.
Alignment of development cycles: Business innovation
Information technologies from their earliest days have represented enormous potential to deliver game-changing innovations. Although IT has become the lifeblood of the modern corporation, the path from point A (IT innovation) to point B (business value) has often been a tortuous one.
In part, this is because IT capability cycles and business demand cycles have rarely coincided. It has often taken up to 10 years for a new, major IT capability (client/server computing, for example) to be fully realized in terms of business value, while most businesses operate on near-term planning horizons. But the short development times made possible by cloud computing mean that business and technology have reached a fortuitous point in both cycles where they intersect.
This alignment enables IT innovation to more effectively drive business innovation. Service providers must maintain constant relevance. As Tim Barker, vice president of strategy for Europe, Middle East and Africa of Salesforce.com notes, subscriptions or renewals are due every quarter or even every month. This supports the alignment of a company’s entire business to the success of that project and the success of the customer.
Although moving to the cloud may be disruptive to the existing IT function, it enables CIOs to have meaningful answers to board-level questions about the value being delivered by the current organizational IT environment, including how much it costs and how quickly new services can be provisioned.
The next phase: Innovation in business design
For especially forward-looking companies, cloud computing may provide a platform for radical innovation in business design—to the point where executives are actually provisioning and decommissioning parts of the business on an as-needed basis.
This is a step beyond software as a service or infrastructure as a service, and amounts to the offering of “business processes as a service”—configured business services and processes provided from the cloud. These would be assessed not just through typical service-level agreements but against key business performance indicators.
Although extremely promising in concept, the idea of adaptive business design heightens the importance of the integrator role. The traditional systems integrator would become, in effect, a business integrator charged with managing complex collaborations across a broader ecosystem of internal resources, partners, vendors and others. As business design or business architecture innovators, integrators would connect and manage business services in configurations that change as business needs and goals change.
Such collaborative, innovative relationships hint at a new agile and adaptive organizational form. Knowing what such a corporation might look like is difficult, but we can see glimpses of it by looking beyond the business community to the organization of particle physicists working at CERN on the Large Hadron Collider (LHC).
To make possible the staggering 15 million gigabytes of data that are being produced every year by the LHC’s experiments, there was a need to create a global organization of collaborators. More than 140 computer centers (each part of a university or research facility) work together to pool their processing resources into a grid computing infrastructure. A globally distributed platform–based on cloud technologies and run as a service—was developed. It is managed collectively by a loosely organized confederation of physicists and their data centers.
Organizational governance in this environment evolves to match the challenges and opportunities. The new organization connects the computer centers through loose memoranda of understanding and business processes, particularly around support, data analysis and technology upgrades. The bureaucratic hierarchies are limited in scope and power, and most work is achieved through collaboration among equals. This structure provides a kind of first look at how an agile, innovative global organization can be created when founded upon collaboration and shared cloud-based technology.
Some companies will perform better than others, of course, when it comes to harnessing cloud-based innovation. Organizational readiness will be key—that is, the ability of the corporate culture and leadership to recognize innovation-based opportunity and move quickly—as will implementation abilities. Above all, companies who are able to collaborate across a wider ecosystem of internal and external players will be at an advantage in capitalizing on the responsiveness and agility that the cloud delivers to the business.
Infrastructure as a Service (IaaS) – Startups requiring the power only supercomputers can provide are able to deploy the resources of massive data centers without one dime in capital investment. With funding from family and friends, Animoto was started by a some young techies that worked for MTV, Comedy Central and ABC Entertainment who knew how to make professional quality video animations. Now their Cinematic Artificial Intelligence technology that thinks like an actual director and editor and high-end motion design bring those capabilities to anyone wanting to turn their photos or videos in to MTV-like videos. At one point, aside from some monitors and an espresso coffee machine Animoto had few actual assets. That’s because everything, including server processing, bandwidth and storage, is handled by cloud computing, a pay-as-you-use model. So when the Animoto application launched on Facebook, causing the number of users to soar from 25,000 to 750,000 in four days and requiring the simultaneous use of 5,000 servers, business carried on as usual. Without the ability to handle a spike like that, their business couldn’t exist. Meanwhile, it’s not just youngsters using IaaS. The New York Times processed four terabytes of data through a public cloud by simply using a credit card to get a new service going. In a matter of minutes it convert
ed scans of more than 15 million news stories into PDFs for online distribution—$240! Look, Ma, no New York Times IT infrastructure needed. Both Animoto and the New York Times observed new opportunities made possible in the Cloud, and acted decisively.
Platform as a Service (PaaS) – With PaaS, software developers can build or “mashup” Web software without installing servers or software on their computers, and then deploy those software applications without any specialized systems administration skills. PaaS service providers not only incorporate traditional programming languages but also include tools for mashup-based development, meaning that deep IT skills are not needed to build significant software. The implications for business innovation center on rapid development and rapid testing via multiple OODA Loops in the Cloud, making it possible to bring new products and services to market without the traditional 18-month IT development cycle or capital expenditures. Innovations that don’t pan out can be shut down, allowing a company to fail early, fail fast. Remember, innovation must allow for failure, else nothing really new is being done. On the other hand, innovations that prove successful can be scaled up to full Web scale in an instant. In short, PaaS takes traditionalIT software development off of the critical path of business innovation.
Software as a Service (SaaS) – With SaaS we are witnessing a huge shift from IT to BT (Business Technology). In the past, IT was about productivity. But now, BT is about collaboration, a shared information base and collective intelligence (the wisdom of crowds, social networking and crowdsourcing). SaaS is the delivery of actual end-user functionality, either as “services” grouped together and orchestrated to perform the required functionality or as a conventional monolithic application (e.g., CRM, ERP or SCM). The real driver for SaaS isn’t the traditional IT application; it’s the “edge of the enterprise” where business users require a flexible model to deploy new technologies to improve front-office performance. As a growing number of business units tap SaaS offerings without going through their central IT department, we have the advent of “Shadow IT.” The key significance is that while IT has a major role in the enterprise back office(transaction processing and systems of record), these new requirements are directly associated with “go-to-market” activities and will be subject to constant change via OODA Loops. These new requirements must be met very quickly for competitive purposes; some are likely to endure for only a few months; and their costs will be directly attributed to the business units consuming theneeded “services” and paying as they go.
Now consider operational innovation inside a huge company like GE blending both internal clouds and going beyond the firewall to reach out to suppliers in the Cloud. GE’s supply chain is huge, including 500,000 suppliers in more than 100 countries that cut across cultures and languages,buying up $55 billion a year. GE wanted to modernize its cum
bersome home-grown sourcing system, the Global Supplier Library, build a single multi-language repository, and offer self-service capabilities so that suppliers could maintain their own data. So did CIO Gary Reiner and team start programming? The short answer is “ no.” GE looked to the Cloud for a solution. GE engaged SaaS vendor Aravo to implement its Supplier Information Management (SIM) SaaS that would ultimately become the largest SaaS deployme nt to date. GE is deploying Aravo’s SaaS for
100,000 users and 500,000 suppliers in six languages. When GE goes outside its firewall toinnovate, you can bet that other CEOs will be asking their CIOs lots of questions aboutharnessing the Cloud for operational innovation.
BPM as a Service (BPMaaS) – Business Process Management (BPM) is what sets “enterprise cloud computing” apart from “consumer cloud computing.” Because the average end-to-end business process involves over 20 companies in any given value chain, multi-company BPM is
essential to business innovation and maintaining competitive advantage. Bringing BPMcapabilities to the Cloud enables multiple companies to share a common BPM environment and fully participate in an overall end-to-end business process. BPMaaS can be implemented as a“horizontal” Business Operations Platform (BOP) that has a Business Process Management
System (BPMS) at its heart. This is similar toPaaS, but rather than programming tools being accessed, the BPMS is being accessed for fu
ll process lifecycle management and specific process services such as process modeling and business activity monitoring. For example, using
a Business Operations Platform from Cordys, Lockheed Martin has deployed a Cloud-basedCollaborative Engineering systemto orchestrate the work of hundreds of subcontractors that have disparate product lifecycle management(PLM) and CAD/CAM systems. This represents
one of the world’s most complex enterprise computing environments now being addressed by
cloud computing. Meanwhile, Dell, Motorola, Boeing, Avon, Panasonic, IBM and othermultinationals use e2Open’s Business Network to provide complete demand and supply chain management in the Cloud.
Nowhere is the OODA Loop more applicable than in supply chain management, especially if you consider the massive disruptions that resulted from the tsunami in Japan or the need to bring newproducts and services to market with greatspeed. While BPMaaS can enable companies tomanage business processes more efficiently, it’s real business innovation impact is that it canalso empower entirely new business models that dynamically integrate demand-supply chain partners into virtual enterprise networks that offer compelling value to customers. Jasmine Young,a Facilitator at the Haas School of Business Institute for Business Innovation, summarized, “The Cloud is about leverage, the way credit is leverage in the financial industry. Businesses need to think about how they can leverage their suppliers and partners—and customers. And that’s how
the case toward innovation in the Cloud can best be driven.” By aggregating more and moreofferings for their customers, industry boundaries become blurred as smart competitors enter markets outside their primary industries. ExxonMobil is in the gourmet coffee business. Starbucks is in the Internet business. Wal-Mart is in retail banking. Microsoft is in the telephone businesswith its acquisition of Skype.
For now, let’s just leave it that all this OODA Loop activity happens in the Cloud, for it’s not Industrial Age assets that must be managed, it’s digital immediacy and the weaving of a digital tapestry among our customers and trading partne rs that counts in the 21st Century business innovation dogfights
Jason Stowe, founder and CEO of Cycle Computing
, about his experiences as an entrepreneur who built his business on the cloud and offers the chance for others to do the same is as follows. Cycle delivers high-bandwidth supercomputer capabilities to scientific, engineering and technical firms — many of which are startups. “Any size organization can now tap into supercomputing power, from big companies to start-ups to individual researchers,” he says. He even coined a term for what his firm is offering: “utility supercomputing.” Essentially, thanks to cloud, Cycle can make supercomputing power available to the masses.And lots of startups and small businesses are taking advantage of this relatively new cloud resource. Stowe gives examples: a chip design firm runs simulations of its digital circuits on his firm’s CycleCloud clusters. Researchers at a bioinformatics start-up use Cycle’s cloud to index and query genomics data to help fight disease. A young, up-and-coming scientific instrument company uses Cycle’s clusters to process the high volume of data that comes off their products.“In these cases, start-ups can focus on their core-competency while still accessing a supercomputer that only Fortune 100s could build and operate before,” says Stowe. Many of the startups he works with would not have been able to get off the ground without cloud offerings such as that Cycle is offering. “Science-heavy start-ups would require much larger capital investments to get off the ground if they didn’t take advantage of cloud and utility supercomputing offerings,” says Stowe. “For example, 30,000-core cluster for top-five pharma would have cost $5 to $10 million and about six months to build.” With Cycle’s cloud offering, the project took eight hours to implement, at a cost of about $10,000.