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What is the business value of cloud computing?

Cloud

September 21, 2020

To define the business value of cloud computing is a challenge. Everybody knows it is the hottest thing, drives big numbers with a market size of USD 371.4 billion1 and still, even cloud enthusiasts fail to clearly express its business value and precise cloud business benefits. This is no surprise, as cloud computing only is a headline and the values under it are spread over a vast range of technologies and use cases. It also has to do with the perception of the content of cloud computing. Many people only associate IaaS, compute and storage services, with cloud computing. However, that is only one side of the multi-facetted cloud computing story.

I remember, back in the day, when I started to talk on  the stage about cloud computing (This is my 13th year in cloud business, full time) I would ask audiences a few simple questions to raise cloud awareness.

  • Who in the audience is using cloud computing” – Usually no one would raise their hand
  • Who in the audience uses a web mailer for private mail?” – A lot of hands went up
  • Who in the audience uses an iPhone?” – It was new so not all hands went up but still quite a significant number

And then I told the audience, whoever had their hands up in the air, that they should have raised their hands to the first question as well. They were not aware of cloud being more than just a trendy technology term. They literally put themselves in a box.

What is cloud computing then? The easiest definition is “the provision of IT services and capabilities over the internet”. The keywords here are services and capabilities as opposed to technologies which are being used for on-premises delivery. The technology is in control of the provider as is the product management and development of the services and capabilities on offer. Without going into details, cloud computing strategy usually is determined by IaaS, PaaS and SaaS which describe the accountability level of the provider vs. the customer. Typical capabilities are compute, storage and databases and these are also what most people have in mind when it comes to cloud computing. When it comes to the business value, we will need to look at a much broader spectrum of cloud computing and capabilities enabled by cloud computing. Examples would be data analytics, machine learning, IoT and many more.

So, to determine the value of cloud and to understand the business benefits of cloud computing, we need to look at it in different categories. These are the value categories I suggest.

  • Enabling
  • Relieving
  • Creating

Let’s look at these categories one by one.

Enabling

This is the most obvious value area, where cloud computing is delivering. Enabling means the use of cloud computing creates value by enabling other areas in the enterprise ecosystem to be faster, more efficient and more flexible. The classic characteristics of cloud computing make this obvious.

  • Pay as you go
  • Scale up and down
  • Instantaneous deployment
  • New and innovative services
  • Trials without up-front costs

 

One could also argue that the evolution of application architecture towards cloud-native applications is an enabling factor. It creates more modular services which enable application developers to mesh services.

To cite a real-life example for this category, a multinational automotive distribution, retail and services company reaped cloud business benefits, where cloud services enabled the use of master data management and the ingress of additional data feeds across a variety of channels.

A leading insurance company in Asia used cloud computing and, in this case, specifically micro services to react faster and better on consumer needs through an increased speed in deployments. Cloud computing is the foundation to enable more and faster releases, which in turn get new functionalities to the consumer more often and faster.

Relieving

Cost is the main driver of cloud computing, right? Have you or your company moved to cloud to save money only to be surprised by the escalating costs of storage and transport? The cost benefit increases once you move higher in the cloud computing stack towards value platforms delivered in a cloud fashion. In addition, the shift from migration of application A from infrastructure one to two towards replacing of components with cloud-based offerings can drive the cost of licensing down. Imagine you replace your costly and not cloud-friendly red database with an open source cloud database.

The London Stock Exchange used a cloud-based data warehouse to significantly drive down operational cost and a leading US based financial firm reduced their Infrastructure TCO by 60% through the use of cloud.

Another area, where impact of cloud computing on business can be noted is the whole field of operations. The relieve is primarily two-fold.

  • Increased degree of automation
  • Decreased operational activity

Let’s look at these two in slightly more detail.

Automation can be increased in a non-cloud scenario as well. And you would be surprised how often this is being used as a point of discussion for not moving to cloud. The level of automation,  the speed of automation and its flexibility is simply higher when on cloud. This means you could get rid of routine activities and focus on your priorities with cloud automation. Also, an effect of this is the raised level of self-services for developers, users and customers. The increased level of automation also counters the additional effort to manage cloud instances and services. It is an area that needs to be addressed well to fully harness the power of cloud while keeping cost in check.

For some customers, the use of cloud services is like first-generation outsourcing. It is difficult to let go and there is fear of losing control. The experience of not being able to touch the physical server or not being able to pull the disc is being missed by hardcore IT infrastructure experts. On the other hand, it is a question of – a) Scale, which is much better for cloud providers and b) Priorities. The customers I have met would rather have their team focus on enabling the DevOps world and the secure use of multi-cloud than bolting blades into racks. Relieving the team of basic infrastructure management and driving the elements that make a difference to the developer and user is a cost driver and helps in better execution of innovative concepts.

Disclaimer: Yes, this is a cultural change and you should manage that carefully. Other than some startups which are 100% in the cloud, enterprises will have a mix of old and new for the foreseeable future. It will pay off to nurture your team and manage the change sensibly.

Creating

So far, you might have argued that business value has only been created in a metonymic kind. The other categories free up resources and focus on the top priority, driving business value through core business products. Whether you are offering services or developing physical or virtual products, this is where you create value.

Cloud is the foundation to create many new ways either through innovation or by combining existing building blocks in a new way to realize cloud business benefits.

The vast possibility to use things like IoT, AI and ML, analytics and many more is created by cloud. Take High Performance Computing (HPC) as an example. HPC existed prior to cloud. The issue was just the availability of capacities, the cost to create more capacity and the risk that your investment is outdated in no time. With cloud-based HPC offerings there are so many more projects now that can use HPC effectively. This is what drives business value of cloud computing and in the case of HPC, even value to humanity if you think of advancements like sped up cancer research. Here some more examples:

Low-Code/No-Code – based on cloud computing

Modular digital business models that integrate across boundaries – based on cloud computing

The platform economy – based on cloud computing

Separating commodity from value areas – based on cloud computing

Let me explain the last example. The way to define a cloud computing strategy and the resulting priorities is top-down and bottom-up.

While bottom-up is obviously technology driven, aiming to reduce the technical debt and reducing licensing and operational cost, what is the driver for top-down? If you look at the business architecture map showing all the different domains that make the business tick, you can apply three categories. The first category is the innovation, digital, business driven collection of processes and services. Here you would want to harness the full innovative power of cloud computing and digital. You build digitally, so to say. This is where you already do or will deliver direct business value to your customers/consumers. High speed and high visibility as well as high impact are typical for this area.

The next category can be called transactional. Not directly the digital forefront and often including legacy areas that prohibit fast change, this is nonetheless the spine of your business. This is what makes your business work and cannot be changed quickly. It is in many areas historically grown and individually built and that individuality is a driver for past and future value at the very least, partially.

The last category is what I call commodity. These are services that must function as part of the enterprise but that have zero impact on your end product themselves. This can be something like, the HR application in a bank. Although it is individual by business, as a company hiring experts might call the HR application transactional or even business driven digital. In this commodity space is a lot of potential for value. You can declutter your processes, drive down cost and simply re-use standard market models from the cloud. This is a strategic decision but why would your hiring process need to be special if your product is leather bags or furniture? Use a cloud-based SaaS solution and avoid customizing the processes, the UIs, etc. Anything that is not directly adding to the customer product or services should be using the standard. By doing so, and I admit this is arguably a relief topic, you can focus your people, resource and money on the business value creating processes and products

Customers and use cases that use cloud to create new value propositions surprise and amaze us. Some examples are:

CarrotCube: As a device agnostic population health and care collaboration platform, CarrotCube is the next-gen care coordination solution. The clinical pathways addressed in CarrotCube workflow, ensure the continuum of care for chronic patients.

ILA BANK POWERED BY BANK ABC: Developing holistic personalized financial solutions built around customer needs and aspirations, and aligning products and services around their lifestyles

LEADING OIL & GAS PROVIDER: Leveraging AI/ML to reduce costs and CO2 emissions

“Ask Purina” Alexa Skill for Dog Lovers: Purina seeks to educate aspiring dog owners

Conclusion

Explaining the business value of cloud computing in detail and in all its flavors would result in a book and considering the speed of innovation that is taking place in the digital world, it may be outdated on the very day of publishing. The principles in which cloud computing impacts the business will stay the same while the topics themselves change.

You need to apply some changes to get the best out of cloud computing and drive business value:

  • Do not discard it as a technology topic
  • Do not let it sit at the infrastructure level/with the infrastructure team only
  • Apply Design Thinking to identify value areas important to your customers and utilize cloud services to create the formerly unthinkable
  • Test, trial, play and look at cloud capabilities beyond compute and storage, existing and coming
  • Look at examples from other industries and try to apply these to new challenges/value propositions in yours
  • Apply the architecture categorization and focus on processes and applications that drive the most value first
  • Work with a network of partners, from nimble and creative to powerful and scalable

Let me put an emphasis on this by repeating it: It is important not to discard cloud computing as a pure technology topic but rather explore the possibilities that arise from the power of cloud. To do so, you will need to include the business and the enterprise architecture into the discussion.

For sellers of cloud services, this means that the classic IT infrastructure audience is not enough anymore. The developer community within the customer as well as business areas need to be addressed adequately. But be careful, you do need to adjust your pitch to the audience to succeed.

And finally, allow me to warn you that there are people still trying to sell classic products and services on the premise of fear. You should not listen to this. If the only value of a product is about creating fear of using public cloud and not having its own convincing value proposition, I suggest you should not attribute much credit to that. The beauty of today’s IT market is that there are always alternatives and even more so in the world of cloud computing.

About the Author

Matthias Popiolek

Matthias Popiolek

Matthias has more than 20 years of IT experience. He is dedicated to Cloud services fulltime since 2007. He has a unique set of experiences in areas including consultancy management through portfolio management, creation of cloud products, and classic data center delivery. Matthias is focused on enterprises adopting “modern delivery” as a standard way of working. In doing so, he works with customers on strategy, organization, processes and technology.

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