Understanding the Business Impacts of Cloud Computing

By Leslie Willcocks, Will Venters, Edgar Whitley and John Hindle

Cloud computing is already changing the way IT and business services are delivered and managed. But without understanding the longer wave of IT developments of which cloud is just a part, companies may invest in capabilities that do not pay off for them in the long run.

New research from the London School of Economics and Accenture has found that, although near-term investments in cloud computing will be dominated by a cost perspective, developers as well as users will be inexorably moving toward benefits that are not only about costs, but also about innovation.

Our research points to three primary impacts of cloud computing over the longer term: a radical shift towards 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 a satisfactory 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. Customers’ expectations are rising as they become more savvy, meaning that vendors must raise their level of service competency, adopting a 24/7 focus on availability, security and quality.

The risk here is that few current cloud companies are focused on the metrics that would enable them to assess their service capabilities and improve them. A CEO we interviewed put the matter succinctly: “I am moving to only two sets of metrics: customer satisfaction and key business performance indicators.”

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. As an example, consider Qantas Airways, which replaced its 22-year-old, Fortran-based system with a cloud-based computing platform for its massive Frequent Flyer program. Cloud has given the airline a scalable architecture that can cope more effectively with rapid changes in demand, providing more consistent service to its seven 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 cloud accelerates this trend toward IT-based services depends in part on service integrators, who must become more sophisticated in configuring hardware, software, cloud capabilities and 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 cloud being the harbinger of the “death of outsourcing,” we expect a significant increase in the use of external service provision. An increasingly diverse and dynamic supplier community will be 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 e-mail.

A much larger group of specialist providers with distinctive industry or functional expertise. 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 who 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, not just their IT infrastructures. Corporations will in fact be managing 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

Leslie P. Willcocks is Professor of Technology Work and Globalization at the London School of Economics and Political Science and Director of The Outsourcing Unit there. He is internationally known for his work on global sourcing, information management, IT evaluation, e-business, organizational transformation as well as for his practitioner contributions to many corporations and government agencies. He has published 35 books and over 3200 journal papers on these topics.

Will Venters is a Lecturer in Information Systems within the Department of Management at the London School of Economics. His research considers the distributed development of distributed systems. This includes researching Grid and cloud computing, global systems development practices, outsourcing and innovation. http://personal.lse.ac.uk/venters

Edgar Whitley is the co-editor for Information Technology & People. He is also currently involved in the EnCoRe project (www.encore-project.info) that is addressing the role of consent (and the revocation of consent) as a mechanism for providing control over the use of personal data. Together with Gus Hosein, he has recently published Global challenges for identity policies (Palgrave, 2010).

Dr. John Hindle is Outsourcing Marketing Lead at Accenture responsible for industry relationships, research partnerships, and  thought leadership programs.  He also serves as Vice-Chairman of the HR Outsourcing Association (HROA) and holds appointment as Adjunct Professor of Human and Organizational Development at Vanderbilt University.