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Cloud Chapter Two: Transforming Business Models

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Cloud Chapter Two:  Transforming Business Models

Since appearing on the business horizon several years ago, cloud has been embraced by many middle market companies because of its potential to significantly reduce the cost, size and inefficiency of bloated IT systems. In fact, an IBM global survey of more than 2,000 mid-sized businesses found that two-thirds are either planning or currently deploying cloud-based technologies to reap benefits such as cost reduction, better manageability of IT, and improved redundancy and availability. From the August Issue. By Saul Berman, IBM Global Business Services

Recently, however, the page has turned to a new chapter of cloud and an even more compelling reason to consider the technology.  As a technological enabler, cloud opens up opportunities for growth and innovation by facilitating new and distinctive value propositions.  When combined with pervasive trends like mobility, social media, smart devices, “appification” and data digitization, cloud becomes a catalyst for transforming business models.  Indeed, the business discussion now precedes the cloud discussion.

A recent study from IBM Institute for Business Value, Digital Transformation: Where physical meets digital, details the ways that companies are re-shaping their business models in the digital era. It explains how they’re delivering new services and products through exploitation of all the digital dimensions that customers value – mobility, engagement, convenience and customization.  To deliver all this, the study finds businesses need a dynamic business model that enhances, extends or redefines the value delivered to customers. They also need  a dexterous, adaptable operating model that builds, scales and optimizes the capabilities needed to deliver that new value. Cloud provides an ideal technology platform for this type of business model transformation.

To benefit from cloud computing it is important to understand how specific attributes of the technology can trigger the innovation and reinvention of business models, and the operating models that support them.

“The rise of the cloud is more than just another platform shift that gets geeks excited… It will allow digital technology to penetrate every nook and cranny of the economy and of society…”   – The Economist

These attributes are:

1.   Speed and adaptability 
Cloud’s unlimited computing capacity enables deep insight analytics and facilitates rapid prototyping, development and deployment through the use of sandboxes and test beds.  This accelerates a company’s ability to analyze competitive threats, make needed changes, and get to market quickly.

2.   Scalability and elasticity
Cloud computing power and the products and services it supports can be quickly ramped up or down based on need or demand.  This enables companies to react immediately to market changes. 

3.   Cost flexibility
Cloud shifts capital expenditures to operating expenditures, freeing organizations to focus on innovation without massive capital investment that would otherwise be a barrier to entry for many middle market companies.

4.   Reduced complexity
Cloud lets otherwise unconnected providers, partners and users access a variety of products or services, increase or decrease usage, and collaborate around content, applications or processes.  It provisions resources and assets through browser based interfaces that reduce complexity to the end-user.
5.   Standardization
Because cloud “aggregates” providers, buyers and third parties into a shared ecosystem, all related activities, including services, resources, processes, and delivery mechanisms, can be enhanced, presented and delivered in a seamless, synchronized fashion with little disruption to ongoing activities.

6.   Enhanced collaboration
Cloud brings individual and corporate buyers, sellers and third parties together into value ecosystems. Participants share ideas about products and services in terms of their content, processes, and delivery enhancement. And, most importantly, cloud makes it possible for individuals and organizations to engage, communicate and transact business whenever, wherever and however they choose to do so. 

diagram for cloud computing

In combination, these attributes make cloud a potential game-changer for any enterprise or industry.  And, many companies have already embraced and combined these game-changing powers to launch new business models.  Examples of these new business models include: 

Collaborative and synchronized –
working seamlessly beyond company borders: A leading healthcare company is able to collaborate with its extended healthcare community by offering cloud-based access to electronic medical records and clinical data. Especially during a time of economic and political uncertainty in the healthcare industry, the ability to harmonize a massive ecosystem of organizations and data provides a differentiating factor that is likely to keep this organization in the forefront during a turbulent period of industry change.

Simple and cost-flexible –
creating unique new products and services that are available to anyone, anytime, anywhere: A document management company redefined the industry by making it possible for customers to remotely print documents from any nearby public printer. The cloud-based solution works for customers regardless of location – they can be in their own office or on the road. This type of innovation and industry leadership in meeting customer mobility requirements deepens relationships with existing customers and makes it easier to gain new ones.

Fast and scalable – 
creating value through analytics and optimization: One of the world’s major financial exchanges uses cloud computing so that brokers and regulators can reconstruct the environment around a specific trade with historical market information. This type of analysis enables the exchange and regulators to make decisions and establish accountability on a collaborative basis, particularly important in today’s contentious financial environment. The system scales instantly to support increasing storage requirements without costly hardware investments; data retrieval from the cloud takes less than one second.

Scalable and collaborative –
extending customer value proposition and reinventing the industry value chain: A game-changing video provider developed a content platform that drives interactivity, personalization and social intelligence.  Cloud TV unifies all forms of media content, including web, television, social, and video on demand. It puts all this onto one screen and enables viewers to watch – anywhere, anytime, anyplace.

With results like these, it is not surprising that cloud is quickly becoming the technology platform of choice for radical business model innovators and emerging enterprises like Groupon and salesforce.com, as well as established giants like Ford and Apple. 

Those who have embraced cloud are seeing several things begin to happen.  Their organizational – and customer – partnerships are becoming extraordinarily fluid.  Enterprise boundaries are blurring as a result of seamless interactions and transactions.  Today’s adopters are forming new ecosystems, as their cloud-based tools spur collaboration, feedback and innovation among multiple tiers of suppliers and customers.  Innovation becomes constant and pervasive, leading to the creation of completely new types of businesses, as well as transforming the operations of existing ones.

We are at the very beginning of Cloud Chapter Two. Businesses have only just started to exploit its unique potential for business model innovation.

Saul Berman is the Global Leader for the IBM Strategy & Change Consulting Group, IBM Global Business Services (GBS).

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