Cloud enabled Business Model Innovation

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Cloud business enablers are already driving innovation across  customer value propositions and company and industry value  chains. Enterprises are applying cloud to generate additional  revenue streams by enhancing, extending and inventing new  customer value propositions. And cloud is being used to  improve, transform and create new organization and industry value chains . This has resulted in shifts in who  creates value, as well as how it is created, delivered and  captured

Enhance:

Organizations can use cloud to improve current products and services and enhance customers’ experiences to retain current and attract new customers, garnering incremental revenue.

Extend:

Cloud can help a company create new products and services or utilize new channels or payment methods to attract existing or adjacent customer segments in an attempt to generate significant new revenues.

Invent:

Companies can use cloud to create a new “need” and own a new market, attracting new customer segments and generating entirely new revenue streams Value chains

Improve:

Cloud adoption can help an organization maintain its place in an existing value chain through increased efficiency and an improved ability to partner, source and collaborate.

Transform:

By assisting in developing new operating capabilities, cloud can help a company change its role within its industry or enter a different industry.

Create:

Organizations can use cloud to build a new industry value chain or disintermediate an existing one, radically changing industry economics.

Cloud Enablement Framework

Using the extent to which an organization’s use of cloud can affect value propositions and value chains as dimensions, “Cloud Enablement Framework,” identifies three organizational archetypes: Optimizers, innovators and disruptors . These archetypes characterize the impact of an organization’s cloud-enabled business strategy.

They are based on the extent to which an organization enhances, extends or invents customer value propositions – and improves, transforms or creates new value chains.

The framework is not a maturity model.  It is not either  expected  or recommended  that organizations first start as optimizers and then become innovators and disruptors. Instead, an organization should determine its place in the Cloud Enablement Framework based on the company’s strategy, risk profile, competitive landscape, etc Optimizers use cloud to incrementally enhance their customer value propositions while improving organizational efficiency

 Optimizers stand to deepen their customer relationships without risking the potential failure inherent in radical new business models. While optimizers can expand the value they offer through improved products and services, enhanced customer experiences and broader channel delivery options, they tend to realize lower revenue and market share gains than innovators and disruptors.

Optimizer case study: North Carolina State University

Based in Raleigh, North Carolina State University is a comprehensive university known for its leadership in education and research and globally recognized for its science, technology, engineering and mathematics leadership.

Challenge

With more than 31,000 students and nearly 8,000 faculty and staff, NCSU faced growing demand for academic computing resources, making it challenging to deliver the service level that its key user populations – students, instructors, researchers and administrators – require. The university not only wanted to fundamentally change the way it managed computing resources, it also wanted to enhance the user experience, position itself for continued growth and effectively control costs.

Cloud-enabled business model

In collaboration with IBM, NC State created its Virtual Computing Lab (VCL), a cloud-based technology that provides students, faculty and researchers access to the most advanced educational materials, select software applications, and computing and storage resources. The

VCL solution allows users to remotely access a desired set of applications and environments over the Internet – using a personal computer, laptop or mobile device – from anywhere at any time. The solution’s flexible and intelligent resource provisioning offers significant improvements in access, efficiency and convenience over the previous approach, allowing NC State to optimize operational efficiencies and enhance the user experience. In fact, the university has now provided access to the VCL to students throughout North Carolina, including those in elementary, high school, and other colleges and universities.

The Virtual Computing Laboratory (VCL) at North Carolina State University has been a pioneer in delivering secure on-demand computing services for education institutions. VCL was using cloud computing before the term came into popular use: It has been doing research on virtual computing since 2003 and began offering cloud services in 2004.

The VCL academic cloud is based on open-source technology and offers infrastructure-as-a-service, platform-as-a-service, and software-as-a-service, including support of high-performance computing services. The advantages of VCL’s cloud computing approach include consolidation of computing resources and technical support services, delivery of applications that would be difficult to install on student computers, and the extension of computing services to education institutions that otherwise would have only limited technology infrastructures.

As of 2009 VCL was serving more than 30,000 faculty and staff. A typical user accesses VCL through a web interface, going through a set of authentication and authorization steps and then choosing the desired kind of computing environment and time period from a set of pull-down menus.

VCL can dynamically move resources from one application to another, producing increased efficiency and lower costs. During semester breaks, for example, when most students are not using computing resources, the system assigns those resources to researchers with heavy computing requirements for activities such as running complex models and simulations.

VCL now offers services on a pilot basis to seven other North Carolina public universities, the North Carolina Community College System, and several out-of-state universities including three in India. Possible extension of these academic cloud services to K-12 schools are being planned.

 

Business results

  • Moving to a cloud-based infrastructure provided North Carolina State University with:
  • Increased flexibility to shift computing capacity between instructional, research and administrative needs
  • The ability to scale up to match significant growth in university enrollment
  • A chance to share its resources with students throughout the state, improving the education opportunities and lives of many.

Innovators

Innovators utilize cloud to significantly extend customer value propositions, resulting in new revenue streams. In doing so, they transform their role within their industry or enter an adjacent market or industry space.

By extending and transforming, innovators have the opportunity to combine previously unrelated elements of the value chain and value proposition to gain competitive advantage.

3M Visual Attention Service

The 3M Visual Attention Service is an online scanning tool that scientifically analyzes design effectiveness based on how the average human eye responds. VAS marries vision science with technology to help designers, marketers and other communicators test the visual impact of their content and increase the probability that viewers will notice the most important elements of a design.

Challenge

Since the global design community is made up of copious small design organizations, 3M needed to make the new capability accessible from anywhere, affordable to many and available as needed during a design project. By delivering VAS using cloud technology, 3M is able to offer the service on a continuous basis without requiring customers to install special software to use it. Hosting the solution via cloud also helps the company ensure the latest version is always available for customers.

A recognized world leader in technology research and  development, 3M wanted to make its decades of expertise in the  workings of the human visual system available as a service to  customers. Using the Windows Azure™ platform, 3M created a  Web-based application that gives designers the ability to invoke  complex algorithms to analyze the effectiveness of a design,  based on how the human eye will respond. By hosting its  application in Microsoft® data centers, 3M has made an  innovative service available to a global audience, while  minimizing its investment in hardware infrastructure and ongoing administration. The solution, which permitted developers to  evaluate frequent iterations of the application, helped the  company speed time-to-market for its service and achieve  higher quality results, faster than in a traditional development  environment.

Cloud-enabled business model

3M’s cloud-enabled business model allows it to offer a new solution, known as VAS, to a new audience – the creative design community. The cloud-based offering allows 3M to transform its role in the product development value chain by closely integrating with a global network of designers. The affordable, flexible, cloud-based, pay-as-you-go model allows the company to deliver VAS in a fast, user-friendly manner that fits into a designer’s existing design process.

The company developed a prototype of a  Web-based application, called the 3M  Visual Attention Service (VAS). The service  makes it possible for designers to test the effectiveness of their content using visual  attention models, which are based on algorithms that predict the elements of a  scene that a viewer is likely to see and to remember. The prototype, a Web-based  application that was hosted on 3M data  center servers, enabled users to upload  photographs of a physical environment or a  graphic design to the VAS. The  application’s processing engine then  evaluated the image for its “visual saliency”  and returned a map of the image that  indicated, using markings such as those  seen on a heat map, which areas of the  image were most likely to attract a viewer’s attention

3M believed that the most effective  approach would be to operate the VAS  application from a “cloud computing”  environment, in which the solution would  be hosted and managed on the Internet  and reside in an external partner’s data centers. The company evaluated hosted  infrastructure offerings from Microsoft and  others,, 3M chose  the Windows Azure™ platform from  Microsoft. Windows Azure is a cloud  services operating system that serves as  the development, service hosting, and  service management environment for the  Windows Azure platform. Windows Azure  provides developers with on-demand  compute and storage to host, scale, and  manage Web applications on the internet  through Microsoft data centers.Currently, VAS helps customers evaluate  any number of graphical or photographic  images that they choose to upload to the  application. In future versions, 3M plans to  provide customers with the ability to create  entire databases of test images, enabling  users to experiment with, for example, the  content of an advertisement in a variety of  design scenes—or, conversely, a number  of different types of advertising content in  one particular scene

Business results

  • By hosting VAS via cloud, 3M achieved:
  • A highly scalable environment – important during peak  design times
  • A low up-front investment and a flexible pay-as-you-go pricing model to help significantly reduce hosting costs and optimize profits
  • The ability to attract new customers with an innovative solution while facilitating tighter integration within the product design ecosystem

Disruptors

Disruptors invent radically different value propositions, generating new customer needs. They capture unique competitive advantage by creating a new or disrupting an existing industry or market

Disruptor case study: Comcast Xcalibur.

Disruptors often provide customers what they weren’t even aware they wanted or needed! By taking a risk.

Disruptor case study: Comcast Xcalibur

Comcast Corporation is a leading media, entertainment and communications company. It operates cable systems and develops, produces and distributes entertainment, news, sports and other content for global audiences. It is also one of the nation’s largest video, high-speed Internet and phone providers to residential and business customers.

Challenge

In 2011, Comcast piloted Xcalibur, its next generation cloud- based TV platform that aims to revolutionize the way people watch TV. Xcalibur moves the company beyond the delivery of channels and video via set top boxes that use digital television technology to leveraging cloud architecture that delivers live TV service to any Internet-connected device. Leveraging Internet Protocol (IP) technology, the company can update its guide and add features more easily and cheaply. It also helps Comcast meet the demands of “connected customers” to watch TV wherever they want and access content sources more seamlessly.

Cloud-enabled business model

The cloud-based platform shifts the ability to control content into the cloud. It enables live video feeds that serve the ever- growing numbers and types of mobile and connected devices. Customers can find content tailored to their needs in new ways, for example, by using an iPad app to choose channels, on demand videos and Xfinity online streaming videos. They can then watch their selected content when and where they want – whether on TV, tablet or other device.

This personalized TV experience, combined with a powerful search engine and Internet apps to access non-TV content, as well as the ability to share via social media channels, allows Xcalibur to create a radically different customer value proposition, with the potential of attracting entirely new customer segments in the future.

Business results

The Wall Street Journal cited this move to the cloud as evidence of “a new phase in how Internet technologies are transforming television.” Benefits thus far to Comcast include:

  • Meeting customer demands for easier access to TV and other Internet-enabled content
  • Delivering content to more devices than before
  • Creating new apps faster and more cheaply
  • Making UI changes more quickly and easily.

Disruptors can gain “first-mover” advantage. IBM survey indicates a larger percentage of disruptors expect to outperform their peers in the next three years than do innovators or optimizers. While they face greater risks, disruptors tend to anticipate higher rewards

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Cloud – a way for businesses to exploit the capabilities

Cloud has already changed both business and everyday life –  from consumers who perhaps unknowingly use it to access  their favorite music to companies that purposely harness its  powerful resources. While much activity and buzz relating to  cloud involves its technological capabilities, the benefits of  cloud adoption actually extend into the business realm.DigitalRevolutionInfographic

When utilized effectively, cloud capabilities offer numerous  opportunities to drive business innovation. Recent technology  and social connectivity trends have created a perfect storm of  opportunity for companies to embrace the power of cloud to  optimize, innovate and disrupt business models.

To more clearly determine how organizations use cloud today  and how they plan to employ its power in the future, IBM surveyed, in conjunction with the Economist Intelligence Unit,  572 business and technology executives across the globe. Its  research suggests that while cloud is widely recognized as an  important technology, relatively few organizations today  actively embrace it to drive business model innovation.

However, its survey also indicates this will change dramatically in the next few years, with more and more organizations  looking to cloud to drive new business and transform industries.

Through its research, IBM also identified some game-changing  business enablers powered by cloud. Organizations are  exploiting these business enablers to drive innovation that  extends well beyond IT and into the boardroom. Its analysis  reveals that some organizations are harnessing cloud to  transform both product and service development and recast  customer relationships. Through its survey of business and technology leaders, IBM discovered that organizations – both big and small, across  geographies and in virtually every industry – are embracing  cloud as a way to reduce the complexity and costs associated  with traditional IT approaches. Almost three-fourths of the  leaders in the survey indicated their companies had piloted,  adopted or substantially implemented cloud in their organizations – and 90 percent expect to have done so in three years. And the number of respondents whose  companies have substantially implemented cloud is expected to  grow from 13 percent today to 41 percent in three years.

In IT circles, it appears cloud has almost become mainstream.  Nearly half of the respondents in a recent CIO Economic  Impact survey indicated they evaluate cloud options first –  over traditional IT approaches – before making any new IT  investments.

And this cloud adoption phenomenon is not  limited to large companies. Its survey revealed that while a  higher percentage of large organizations (those with revenues more than US$20 billion) are experimenting with cloud, small  organizations are by no means left out of the game. In fact, 67  percent of companies with revenues less than US$1 billion and  76 percent of those with revenues between US$1 and 20  billion have adopted cloud at some level. It’s not surprising  then that the global cloud computing market is forecast to  grow 22 percent annually to US$241 billion by 2020.

Organizations are not only relying on cloud to enhance  internal efficiencies, but also to target more strategic business  capabilities. In fact, the respondents’ number-one objective for  adopting cloud is an external capability – that of increased  collaboration with external partners . Only one of  the top seven objectives cited focused on internal efficiencies,  with 57 percent looking to cloud to drive competitive and cost  advantages through vertical integration. The rest, such as new  channels, delivery markets and revenue streams, all relate to  improved business capabilities.

Interestingly, while its research clearly reveals organizations intend to rely on cloud to enhance their business capabilities,

only 38 percent cite cloud as a leading priority for the entire company. Rather, cloud is still viewed by many as an IT solution, with 62 percent citing cloud as a leading priority for their IT organizations.

IBM survey results suggest that organizations are just beginning to understand the power of cloud to help drive business innovation. Only 16 percent of survey respondents currently utilize cloud for sweeping innovation, such as entering new lines of business or industries, reshaping an existing industry or transitioning into a new role in their industry value chain. However, 35 percent plan to rely on cloud for business model innovation within the next three years.

Clearly, cloud is widely recognized as an important technology, offering capabilities that positively affect IT. However, its full business potential has yet to be realized or even understood by most organizations.

The world is experiencing a digital and mobile transformation, with more information available more quickly in more mediums than ever before. As part of this, consumers have jumped on the social media bandwagon, with many relying on it as their primary collaboration format. Add to this the advent of new analytics capabilities and the results are sweeping changes in almost every aspect of daily business and consumer life.

Cloud provides a way for businesses to exploit the capabilities borne of these digital trends to better meet customers’ needs and drive future growth. In fact, IBM research illuminates six key cloud attributes being used to power business model innovation, which It has dubbed business enablers: Cost flexibility, business scalability, market adaptability, masked complexity, context-driven variability and ecosystem connectivity.

Cost flexibility

Cost flexibility is a key reason many companies consider cloud adoption in the first place. More than 31 percent of executives surveyed cited cloud’s ability to reduce fixed IT costs and shift to a more variable “pay as you go” cost structure as a top benefit.

Cloud can help an organization reduce fixed IT costs by

enabling a shift from capital expenses to operational expenses.

IT capital expenses – which typically include enterprise software licenses, servers and networking equipment – tend to be less fluid, more expensive and harder to forecast than routine IT operating expenses. With cloud applications, there is no longer a need to build hardware, install software or pay dedicated software license fees. By adopting cloud services, an organization can shift costs from capital to operational – or from fixed to variable. The organization pays for what it needs when it needs it. This pay-per-use model provides greater flexibility and eliminates the need for significant capital expenditures.

Cost flexibility is certainly an appealing cloud attribute for Etsy, an online marketplace for handmade goods. In addition to bringing buyers and sellers together, Etsy also provides recommendations for buyers. Using cloud-based capabilities, the company is able to cost-effectively analyze data from the approximately one billion monthly views of its Web site and use the information to create product recommendations. The cost flexibility afforded through cloud provides Etsy access to tools and computing power that might typically only be affordable for larger retailers.

Business scalability

IT scalability is recognized by many as a major benefit of cloud adoption. However, cloud offers more than just IT scalability – it allows an organization to easily scale its business operations as well.

By allowing for rapid provisioning of resources without scale limitations, cloud enables a company to benefit from economies of scale without achieving large volumes on its own. Recognizing cloud’s ability to facilitate efficient growth and expanded options, approximately a third in the survey view business scalability as a top cloud benefit.

For this concept in action, consider Netflix, an Internet subscription service for movies and TV shows. Because it streams many movies and shows on demand, the company faces large surges of capacity at peak times. As Netflix began to outgrow its data center capabilities, the company made a decision to migrate its Web site and streaming service from a traditional data center implementation to a cloud environment. This move allowed the company to grow and expand its customer base without having to build and support a data center footprint to meet its growth requirements.

Market adaptability

In today’s economic environment, the ability to respond to rapidly changing customer needs is a key competitive differentiator. As such, companies continuously seek ways to improve their agility to adjust to market demands. A third of the executives IBM surveyed believe cloud can assist in this respect, citing market adaptability among cloud’s top benefits.

By enabling businesses to rapidly adjust processes, products and services to meet the changing needs of the market, cloud in turn facilitates rapid prototyping and innovation and helps speed time to market.

ActiveVideo certainly recognized cloud’s power to enhance market adaptability when it created CloudTV, a cloud-based platform that unifies all forms of content – Web, television, mobile, social, video-on-demand, etc. – onto any video screen. Content and applications from Web content creators, television networks, advertisers and other media entities can be developed quickly for CloudTV using standard Web tools.

CloudTV leverages content stored and processed in the

network cloud to significantly expand the reach and availability of Web-based user experiences, as well as to allow operators to quickly deploy a consistent user interface across diverse set top boxes and connected devices. The CloudTV approach of placing the intelligence in the network, rather than the device,

enables content creators, service providers and consumer electronics manufacturers to create new television experiences for their viewers.

Masked complexity

In addition to business scalability and market adaptability, cloud also offers the advantage of masking complexity. Cloud provides a way for organizations to “hide” some of the intricacies of their operations from end users, which can help attract a broader range of consumers. Because complexity is veiled from the end user, a company can expand its product and service sophistication without also increasing the level of user knowledge necessary to utilize or maintain the product or service. For example, upgrades and maintenance can be done in the “background” without the end user having to participate.

Masked complexity is perhaps less recognized than some of the other enablers, as 20 percent of the business leaders in the survey cited it as a top benefit. Xerox definitely recognizes this cloud attribute, however, as evidenced by its Xerox Cloud Print solution. With Xerox Cloud Print, workers can get their desired content in printed form wherever they might be by using Xerox’s cloud to access printers outside their own organization.

While printing from the cloud requires quite a bit of data management – with numerous files to be stored, converted to print-ready format and distributed to printers – the complexity is hidden from users.

Context-driven variability

Because of its expanded computing power and capacity, cloud can store information about user preferences, which can enable product or service customization. The context-driven variability provided via cloud allows businesses to offer users personal experiences that adapt to subtle changes in user-defined context, allowing for a more user-centric experience.

This is a significant cloud attribute, as evidenced by the more than 50 percent of respondents who cited “addressing fragmented user preferences” as important for their organizations.

Siri, the Apple iPhone 4S cloud-based natural language “intelligent assistant,” is all about context-driven variability. It allows users to send messages, schedule meetings, place phone calls, find restaurants and more.

And while other phones have some voice recognition features, Siri “learns your voice” as Wall Street Journal columnist Walt Mossberg put it.

Siri uses artificial intelligence and a growing base of knowledge about the user, including his or her location and frequent contacts, to understand not only what is said but what is meant. In a nutshell, it leverages the computing capabilities and capacity of cloud to enable individualized, context-relevant customer experiences.

Ecosystem connectivity

Another business enabler powered by cloud is ecosystem connectivity, which is recognized by a third of the respondents as a major benefit. Cloud facilitates external collaboration with partners and customers, which can lead to improvements in productivity and increased innovation. Cloud-based platforms can bring together disparate groups of people who can collaborate and share resources, information and processes.

Health Hiway is a great example of how cloud can enable ecosystem connectivity. A cloud-based health information network, Health Hiway enables the exchange of information and transactions among healthcare providers, employers, payers, practitioners, third-party administrators and patients in India. By connecting more than 1,100 hospitals and 10,000 doctors, the company’s software-as-a-service solution facilitates better collaboration and information sharing, helping deliver improved care at a low cost, particularly important in growing markets, such as India.

Scaling to Succeed in New Business Models

Executives everywhere recognize there is money in the cloud and are investing in new “anything-as-a-service” (XaaS) business models. Gartner forecasts that the market for applications, application infrastructure, and systems infrastructure delivered as public cloud services will reach $43 billion in 2015  Yet as technology providers scramble to stake
their claim in this new frontier, many of them confront a sobering reality: Creating
and implementing the right operating model to build a successful cloud business is far from easy. In fact, many executives acknowledge that it’s one of the most difficult challenges they face today.
To help leaders sort through this challenge and chart a clear course forward, Accenture recently completed a research study with more than 40 senior executives from 30 high tech and technology enabled companies. These discussions built upon the hypotheses outlined in paper from early 2011 entitled, “Where the Cloud Meets Reality: Operationally Enabling the Growth of New Business Models,” and sought to understand how companies were operationalizing new XaaS models alongside their traditional, non-cloud offerings.
Accenture research confirmed that virtually all companies are struggling to deal with the operational complexity caused by XaaS, and by new business models more broadly. The reality is that building the new XaaS capabilities required to succeed and embracing a services-centric mentality is hard work that touches every corporate function. Accenture found that in most cases the launch of new XaaS businesses far outpaces a company’s operational ability to deliver and scale. As the general manager of a cloud business unit explained , “We are going 100 mph and the cliff is 10 miles away. We go ‘kaboom’ in just a few quarters unless we get our operations functioning quickly.” Based on  research and years of client experience, accenture identified 10 recommendations across four major
focus areas that industry leaders should embrace to launch and scale XaaS models
successfully
The logic flow and order of these recommendations is critical. Success starts with achieving business model clarity as the necessary precursor. Second, companies must identify and build distinctive XaaS capabilities and incorporate them into a cohesive operating model; accenture research identified eight unique XaaS capabilities. Third   companies must develop and agree to a segmented operating model approach at the most senior levels of the company. Finally, companies require a new governance model to handle this complexity. A critical element of this model is the creation of a new role, which is Chief Operational Architect.
Collectively, implementing these recommendations requires a dramatic departure from how most incumbent companies are run today. But continuing on the current path is not an option, as customers are deciding with greater frequency that XaaS solutions can meet their needs in a superior manner to traditional models.In technology, growth is king, and every percentage point of growth a company fails to capture results in a measureable loss of shareholder value. As such, the future demands attention to these challenges today, while cash is available to fund investments and create the new capabilities required to
compete in the XaaS age.

Converting from a traditional technology company into one that delivers its former product as a service from the cloud “requires a dramatic departure from how most incumbent companies are run today,” concludes a new Accenture report, “Where the Cloud Meets Reality: Scaling to Succeed in New Business Models.”

The report cites three companies that are succeeding with cloud business models in one form or another: Salesforce.com, RightNow Technologies, and McKesson. But it also notes many technology company executives don’t understand how disruptive cloud business models are to their traditional way of building and shipping products.

he main thrust of the report is about how leading technology companies need to convert their products into cloud services and products, but are struggling to do so. Implicit is the possibility that if leading technology suppliers are troubled by the transition, then many other companies are likely to be as well. As a matter of fact, if a technology supplier doesn’t understand the cloud and is slow to convert, that’s going to leave its customers behind their competitors who are served by more cloud-adept technology suppliers.

Some technology companies, such as IBM, HP, Cisco and Dell, have decided to become cloud infrastructure service providers in one form or another, and also supply hardware and software to those companies that wish to build out cloud data centers. Likewise, Intuit and Microsoft, software publishers, are both becoming software as a service suppliers. All of these transitions require new business models to be put in place and new business processes to implement them.

[ Learn more about how cloud computing will change conventional business models. Read Accenture Sees High Tech Firms Moving To Multiple Business Models. ]

Hosting providers “have it the easiest, as the cloud is in many ways just the next generation of services that they already provide,” the report said. But they are operations-focused companies that will need to become more innovation and focus more on consultative services in the future, the report warns. Infrastructure as a service suppliers such as Rackspace and SoftLayer have become cloud suppliers by evolving their hosting businesses.

“Most companies [that] come from a transactional, product-based and channel-centric mindset are woefully unprepared to deliver the world-class customer experience demanded by anything-as-a-service models,” the Accenture authors Tim Jellison, Dave Sovie and Sam Glick concluded.

The report, issued April 23, said the transition to cloud products requires a new governance model to handle cloud complexity, and requires the creation of a new role, Chief Operational Architect.

Two companies cited in the report for having added cloud business models to their existing businesses are Apple and Sony. Both were previously producers of consumer electronics. Accenture says their emerging business model is that of content and service providers from the cloud; Apple in particular has demonstrated how additional business models in the cloud can be grafted onto a traditional device maker’s strategy.

Company executives need to define their cloud business model, which consists of how the company will make money in a particular market with its product or service. The business model is a combination of a target customer, an offering or value proposition to the customer, and a revenue model. In cloud computing, revenue is usually raised one of two ways: by charging for timed use, or through subscriptions. These elements are combined with a go-to-market approach for the full business model, according to the report.

The business model is distinct from the operational model–the set of business processes, people, and systems that implement the business model.

In the Salesforce.com example, co-founder Parker Harris told the Accenture authors that it was important that Salesforce adopted an approach to scale its applications Internet-style to thousands and tens of thousands of simultaneous users, as opposed to developing on-premises software for use by one company. In addition, a healthy tension developed between development teams, focused on innovation in three product releases per year for a total of 500 releases across the product portfolio, versus the operational team, that needed to ensure continuous operation and minimal impact of changes on the customer. Salesforce.com had to devise its own version of agile development and devOps that maintained that tension, Harris said, a different way of operation from a traditional software company. It also uses several scorecards and tools to correlate what’s going on with customers in their interactions with Salesforce.com and the likelihood they will renew their subscriptions. Salesforce appoints customer success managers to deal with customers, not technical support personnel, because users want prescriptive advice on how to better use the software in their businesses.

RightNow Technologies started out in 1997 as a SaaS and on-premises software company, with 15% of revenues coming from the on-premises customer contact software. As it matured, it found the development process for SaaS different from the on-premises model, where customers don’t want frequent updates. It was hard to figure out how to incentivize the sales force to sell both on-premises licenses and SaaS subscriptions. And having two operational models for one product complicated revenue recognition and reporting. David Vap, chief solutions officers, told Accenture that the company decided to become a SaaS-only company at a time when its competitors tried to maintain both. The move rationalized sometimes conflicted business processes in the company and allowed the development team to focus on rapid updates and leveraging the power of cloud computing, he said.

In the third example, McKesson Technology Solutions unit consisted of many independent builders of healthcare systems, each addressing different market segments and generating a combined $3 billion in revenue. As more of them became SaaS providers, Robert Hendricks, senior VP of technology planning and software development in MTS, and other company officials realized the SaaS delivery model offered new opportunities that the various business units, still operating independently, couldn’t capitalize on by themselves. In 2006, new regulations prompted the company to better address governance issues. Hendricks insisted its RelayHealth unit act in a more integrated way, adopting a definition of enterprise application architecture, along with standard process methodology, data management, testing models, and development tools. For its customers, RelayHealth was supplying connectivity solutions for the various functions of healthcare providers, pharmacies, and payers. It was important to maintain one set of standards for determining patient release, for example, across these communities as MTS built its SaaS systems. Governance has required forming strategic collaboration communities of developers, managers and users to evaluate quality and risk of new offerings. The governance communities allow the tensions inherent in providing healthcare to bubble up and be managed across a wider sphere, allowing more effective delivery of new McKesson products and services, Hendricks told the authors.

“Growing cloud-based business models is highly strategic and an immense undertaking for high-tech companies,” said Mitch Cline, global managing director with Accenture’s Electronics & High-Tech group, in a statement. Company executives wedded to traditional ways of doing business will find it hard to sort out what business models are already in use or which ones are needed to capitalize on the new opportunities that come with cloud computing. Based on interviews with 40 executives at 30 high tech companies, many “aren’t prepared strategically or operationally to cope with the magnitude of disruption they’re facing,” he said.

The report recommends that companies take these steps to help overcome the challenges:

— Determine what business models they have today and which ones are needed to capitalize on the cloud.

— Build the capabilities needed to deliver business in the cloud.

— Develop a segmented operating model to deliver the right customer experience and economics to the right groups.

— Implement governance to make key product delivery and resource allocation decision

Cloud-enabled business model accelerator

Assessing  opportunities and defining the roadmap
Individuals and businesses alike are embracing the digital revolution. Social networks and digital devices are being used to engage government, businesses and civil society, as well as friends and family. People are using mobile, interactive tools to determine who to trust, where to go and what to buy. At the same time, organizations are undertaking their own digital transformations, rethinking what customers value most, and taking advantage of the availability of vast and ubiquitous computing power to create new business and operating models primed for the digital age.
The challenge for business is how fast and how far to go – taking advantage of what’s newly possible for competitive differentiation and doing all this with an eye to what matters most to their customers.
Business value of Cloud
One of the most prominent drivers and catalysts for this digital revolution is the increasing adoption of Cloud technologies across industries. But the cloud is not just about technology – it is a paradigm shift.
Reflecting on your business, ask yourself what you would do if you…
• could give any of your customers access to any of your products and services anytime, anywhere, by any means?
• could have on demand access to unlimited computing and analytics power?
• could easily and seamlessly connect and collaborate with business partners, networks and customers wherever they happened to be?
• could inexpensively and rapidly develop and experiment with new products & services?
Cloud provides six key enablers that can fundamentally change an industry or expand the horizon of what is possible in business model innovation. These enablers ‘level the playing field’ by dramatically reducing barriers to entry, enabling companies to expand their scope, offerings, value propositions, markets as well as creating space for nimble new-comers to enter into an industry.

Cloud business value enablers
• Speed and adaptability – enables rapid prototyping, faster time to market, adoption of innovative ideas
• Scalability/elasticity – that enables fast scale-up or down of resources on-demand, limiting the effects of market volatility
• Cost flexibility – enables a shift from fixed to variable costs and transactional ‘byte-sized’ pricing models
• Analytics – enables handling massive internal and external unstructured data to garner insights
• Focus/strategic alignment – enables strategic focus on core competencies and ‘sourcing’ of non-core functions efficiently from the cloud
• Collaboration – enables creation of new value nets through customer/partner interactions, creating new ecosystems for innovation

Benefits of Cloud-enabled business model accelerator
• Understand how the Cloud is relevant in the context of  business model
• Identify and prioritize business model innovation opportunities
• Evaluate the operating model impacts and requirements for change
• Understand the high-level cloud technology requirements
• Develop a preliminary list of partnering or collaboration opportunities