In the previous blog post I discussed how we could justify cloud computing from an ROI and agility perspective. Today I’d like to complement this discussion by focusing on the business value cloud computing can add by being used within the frame of innovation.
In an article posted last February, Charles Babcock points out cloud computing can drive business innovation, but states that while cloud is an enabler of new business models, too many companies are just experimenting or improving existing processes and not taking full advantage of the technology. I agree with Charles’ statement, but believe that looking at cloud as just an enabler of new business models is too limited.
Last March, as part of my series on the business aspects of cloud, I highlighted 4 areas of innovation with cloud. The 4 areas were:
- Business Process Innovation, the transformation of existing business processes and the creation of new ones
- Product and Service integration, fundamentally the creation of a new user experience for clients
- Eco-system integration, improving the information flow between the members of an eco-system
- IT innovation, which is what we are most often talking about when discussing cloud
I stand by those four areas, believing they are all still pretty relevant. I’m seeing some companies using cloud computing to create new markets altogether. But when we take a closer look there are great differences in the way companies go at this.
Building new businesses
I’d like to highlight three sets of experiences I’ve gotten lately, one in the financial services industry, one in manufacturing/logistics and then one with a start-up. Each will demonstrate how, by using innovation, new business areas have been exposed.
Let me start with the financial services industry. What is interesting with this industry is that IT is the business, and you understand that when you realize that 98 percent of your money is bits and bytes in a computer lacking any physical substance. So banks are confronted with the need to differentiate and provide unique user experiences to their customers. Because the information is in IT systems, differentiation is created through unique IT environments and functions. Financial services institutions cannot stand still because they support tools for the trading room or new services for their customers. They continuously need to innovate. And that is where cloud computing can help. It gives them an infrastructure they can grow and shrink when required within a matter of minutes. Using PaaS environments they are able to focus on their core needs—the development of new functionality. By improving dev/ops integration, testing and bringing in production becomes quicker. That gives them increased agility as we discussed in the previous blog post. Cloud computing is a tool for banks and insurance companies to implement new innovative products and services quickly. I can’t tell you how many discussions I’ve had on that subject. You know, these financial services companies are competing for having the shortest fiber optic between their systems and the stock market systems so their orders are processed first.
These sophisticated users are constantly on the look-out for opportunities to improve and innovate.
The manufacturing industry is in a very different situation. They make and sell/deliver products and information technology is a tool to support the operations. So, frankly they are not looking out for the latest technologies but rather for proven functionality. However, the world is increasingly turning digital. And whether manufacturing companies like it or not, information technology is creeping into their products all over the place. An ever-increasing percentage of the cost of a car is electronics, firmware and software. More and more business is conducted over the Internet. Some advanced companies, and today it’s still a minority (early adopters?), are looking at whether IT can help them create new products and deliver new business models. We all know how Amazon used a new business model to create a successful business that puts Barnes & Noble in great difficulty (see Amazon – Barnes & Noble case study). But what is interesting is that established companies are looking at creating new user experiences embedding the cloud in their products. Look at what Ford did with its Evos concept car. Some use cloud computing and social media to develop innovative products. The Fiat Mio is a showcase of such approach. GTNexus on the other hand, developed a cloud-based logistics platform allowing large manufacturers to track their products throughout their supply chain. And I could go on like that. What do all those companies have in common? They used the cloud to reduce the costs of operations, build new products/services or grow their markets.
Cloud also makes it easier to start-up a new enterprise. Obviously if you want to develop software, you can do so using public cloud platforms such as HP Cloud. No need to build your environment. You can even access directly a number of PaaS platforms and use the same cloud environment to host your product once it is developed. Obviously, any start-up can use cloud services (typically SaaS) to support their operations, reducing the cost of entry into a market. In doing so, start-ups no longer need to set-up their own IT environment upfront. They pay for what they use only, and when success is greater than planned, they can quickly expand their operations without being limited by their IT environment.
Understanding customers and markets
About one year ago, I heard the story of a bed and breakfast owner established in the south of France. He had a good business and reservation levels were high. One day he got intrigued because three different customers called to cancel their reservations. From then on, reservations went downhill. After a couple weeks, his house was most often empty. He didn’t understand what happened to him. A week or so later, searching on the Internet, he ran into a post from one of his customers, complaining about something they claimed had gone wrong when they were at his house. The comments were very negative. That is what had triggered the cancelations. So, he ended up contacting the complainer, who finally agreed he had been unfair and accepted to withdraw the comment. Reservations started again and things got back to normal. But he lost around six weeks worth of business during the peak season.
Having a way to quickly and automatically spot issues related to your service or your product can reduce costs drastically and avoid situations such as the one described. But most of the comments are unstructured data in forums, tweets, blogs etc. Tools such as Autonomy are available today. The information is on the Internet. So, social media analytics are perfect tools to be located in the cloud. They can be used to do sentiment analysis related to your brand and products or services, to spot issues with products and services, to find out about competitor problems, etc. Warranty problems for example can often be found very quickly, limiting the amount of items needing to be recalled, by analyzing warranty claims, forums and tweets. HP actually offers outsourced Social Analytics and Management services, sounds like a BPaaS.
Through those examples, I want to show you how cloud can help create value for enterprises through doing new thing—through innovation. It is important to understand that in the current volatile economy, it’s imperative to be able to react quicker than your competition. That is what gives you the edge and allows you to be profitable. When calculating the return on investment of cloud, this should be taken into account. Obviously it is not easy to estimate, but it can make the difference.
Formal ROI, agility and innovation show how cloud can provide value to the company. There is actually one other aspect, and that is related to improved productivity. But that will be for the next blog, so keep coming back and let me know what you think.