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.