When the subject of cloud computing is raised, there is often a healthy suspicion from IT buyers that cloud is a marketing term which is used as a new way of selling complex, unproven solutions to them. This is not surprising, considering the history of the IT business. There is an alarmingly high incidence of IT projects failing to meet expectations and running massively over budget.
Cloud commentators, myself included, tend to focus on the transformative and disruptive impact of cloud computing. We tend to talk a lot about Apple, Amazon and Google and how they have completely disrupted the media and music industries, using cloud technologies. This makes a lot of sense when engaging with executives from these industries. However, executives in other industries have yet to see a profound disruptive impact caused by cloud computing and few of them truly believe that their industries will be impacted in the same ways as businesses that involve the trading of digital content. This is a huge mistake on their part.
Within most enterprises in mature markets, cloud computing is still at an early stage of adoption. Technology infrastructures within these enterprises are characterized by the increasing use of virtualization and ad hoc public cloud use. This public cloud use is usually driven by business units and not IT departments. For these enterprises, cloud services augment their existing non cloud-based technologies.
There is increasing evidence to suggest that this is the first stage of cloud computing adoption and that most of these organizations will soon shift sizeable workloads onto cloud platforms. In this phase, cloud use permeates throughout the organization, supported and enabled by IT departments. IT departments may initially seek to block the ad hoc use of cloud services by business units. But, over time, as senior executives become exposed to cloud services that offer them benefits, IT departments are usually forced to find ways of enabling the use of cloud services across the enterprise. As this happens, IT departments typically develop policies and procedures relating to the use of cloud services within the organization. These policies and procedures enable more extensive penetration of cloud services. Extensive use of cloud-based technologies, in many cases, creates more complexity for enterprises as they need to find ways of integrating these technologies with their legacy investments.
The third phase of cloud computing is characterized by cloud-based technology becoming the norm, and business agility being realized. In this phase, cloud technology has worked its way through the organization. It underpins innovation and is used to differentiate one organization from another. It can be termed the innovation phase. For example, in this stage, organizations discover that cloud technologies can automate more processes and engender more self service. A great example is the low cost airline business. Low cost airlines such as Jetstar are constrained by assets in small airports. They have limited space to manage the check-in process. Their business model also drives them to ‘sweat their assets’ as much as possible so they seek to maximize the use of their aircraft by limiting the amount of time that they are idle. Jetstar aims to be a 100% self service airline as soon as possible and pioneered self service check-in. Self service check-in enables the airline to optimize limited space in smaller airports and hence to maximize the use of its aircraft. It is cloud-based technology that enables this. Cloud-based technology can enable the airline to handle increases and decreases in demand seamlessly. It can eliminate queues. It also allows the airline to provision new products and services such as insurance products or gourmet meals much more easily than would be the case with traditional IT implementations. Progressive organizations across industries are using cloud-based technology to transform the ways they engage with their customers. This is leading to significant innovation.
The fourth phase of adoption is characterized by cloud technology disrupting industries. As mentioned earlier, this has already occurred in the media and music industries. How will it disrupt other industries? It is clear that the agility which cloud computing offers can significantly lower barriers to entry across industries. Legacy infrastructures and inflexible processes paralyze organizations and make them unable to innovate and create new opportunities. Google, Amazon and Apple each show a healthy disrespect for the boundaries between industries. Each one of these companies continues to cause disruption in other industries. Recently, Google entered the credit card market. It can use its brand, scale, customer relationships and agile technology to do this. Some in the financial services industry are aware of this threat and already see Google as a potential competitor. Indeed, the technology used by Google makes it increasingly easy for non financial services firms such as retailers to enter the financial services industry. The financial services industry is ripe for disruption. Expect to see some financial services firms enter the ‘innovation phase’ soon. This will act as a precursor to disruption in that industry. Other industries including healthcare, education, utilities and retail will also be disrupted by technology over the next few years.
In summary, most enterprises are at a phase where cloud computing is being added to their existing technologies. This is the beginning of a process that will inevitably lead to significant disruption in most industries. Executives across industries should take note.