Posted on Harvard Business Review: September 14, 2010 9:00 AM
Our latest book, The Power of Pull, describes a Big Shift that is profoundly re-shaping our global business landscape. Digital technology infrastructures are continuing to advance at a dizzying pace, creating both challenges and opportunities for businesses. In the next two blog posts, we will focus on two key building blocks of these new infrastructures—cloud computing and social software. Let's start with cloud computing.
Most non-technology executives are wary of cloud computing. They have been through technology fads before. While they will acknowledge that cloud computing is interesting in terms of potential to reduce IT costs, they harbor a suspicion that this might be just a lower cost form of IT outsourcing. If that is all it is, then it is important for the CIO to take care of, but there is no compelling need for the rest of the C-suite to get deeply involved in the technology.
In fact, this is a much too narrow view of cloud computing and puts the firm at risk. Cloud computing has the potential to generate a series of disruptions that will ripple out from the tech industry and ultimately transform many industries around the world. This is definitely a technology that deserves serious discussion from the entire senior leadership team of a company.
Accepted definitions of cloud computing quickly narrow the focus to distinctive delivery of technology resources. For example, a Gartner analyst describes a model characterized by location-independent resource pooling, accessibility through ubiquitous networks, on-demand self-service, rapid elasticity and pay-per-use pricing. Enough to lull the average C-level executive to sleep.
What seems to be missing in most discussions of cloud computing is the potential for new IT architectures and the evolution of the cloud into distinct layers of capabilities—from infrastructure to platform to application to business—each delivered "as-a-service." Rather than focus on how it can do what your IT already does—just cheaper or scaling faster—look for cloud computing to do the things that your IT never has been able to do, look to the unmet needs and then look for the disruptions that will sprout up across industry after industry.
The disruptive potential of cloud computing will likely play out in four distinctive but overlapping waves as described more fully in our working paper, "Storms on the Horizon." (pdf)
The first wave of disruption focuses on new ways of delivering IT capability to enterprises that will be very challenging for traditional enterprise IT firms to embrace. This disruption will be largely confined to the technology industry itself, although it creates room for large companies in adjacent industries to enter the cloud computing arena as large scale providers of services.
The second wave of disruption concentrates on the emergence of fundamentally new IT architectures designed to address unmet needs of enterprises as they seek to coordinate activities across scalable networks of business partners. These new IT architectures enable new ways of doing business that will be very disruptive in global markets. Entrepreneurial companies like Rearden Commerce and TradeCard are already implementing elements of these new architectures.
The third wave of disruption will be a restructuring of the technology industry as vertically integrated cloud service providers begin to focus on different layers of the technology stack. Companies that target control points in this new industry structure will be in a powerful position to shape the entire technology industry.
The fourth, and most powerful wave of disruption, plays out as companies begin to harness cloud computing platforms to disrupt an expanding array of industries with fundamentally new value propositions that will be very hard for incumbents to replicate. Among the industries that will be in the bulls eye for disruptive plays are media, healthcare, financial services and energy.
All four of these waves are already starting to play out—there are early examples of activity in all four waves, even though the critical mass of movement is still largely concentrated in the first wave of disruption.
How does this all relate to The Power of Pull? Cloud computing can enhance the ability to scale all three levels of pull described in our book.
New architectures emerging from cloud computing providers will help significantly scale the ability to access highly specialized business providers on a global basis from orchestrators like Li & Fung.
As these cloud platforms scale, companies will likely unexpectedly encounter resources and companies that they were not even aware existed, driving a second level of pull—attracting people and resources.
Cloud computing can also provide a much more robust foundation for the creation spaces that we suggest will drive the third level of pull—achieving our full potential as individuals as institutions.
There's another way that cloud computing will play out in the Big Shift. This technology platform will help empower participants on various edges to scale their innovative practices much more rapidly to challenge the core of economic activity. As we have discussed before, edges take many different forms and are quite different from fringes that merely lead a precarious existence on the periphery of the core. Cloud computing helps to provide people with limited resources access to sophisticated computing, storage and networking capability that previously would have been beyond their reach.
This has the potential to fundamentally alter the dynamics of edge-core relationships, especially within the enterprise. In the past, conventional wisdom regarding change management in large institutions held that you funded experimental initiatives on the edge and then folded them back into the core in the hope that they would be catalysts for change in the core. In reality, most of these initiatives died horrible deaths as antibodies in the core rapidly overwhelmed the brave edge participants who ventured into the core.
Now, really for the first time, there is potential for the edge to scale much more rapidly through access to pull based resources like cloud computing. Rather than feeling the need to return to the core, edge participants now can grow in far more leveraged ways and increasingly pull more and more people and resources out of the core into the edge. Complementary edges can also use cloud computing to connect with each other and further amplify their impact.
The net result? Cloud computing is poised to help significantly compress the cycle of edge emergence and ability to overtake the earlier core as the focus of economic activity. Companies will have to be increasingly focused on the need to identify emerging edges earlier and investing appropriately to support these edges so that the company can avoid being blindsided by disruptions.
Given this perspective, it is essential for senior management to actively engage on understanding the capabilities of cloud computing and anticipating its ability to transform the way business is conducted. Every company should go through the exercise of defining scenarios of likely industry evolution over the next ten years given evolving cloud computing platforms and tracing out the implications for what capabilities their own company will need to acquire or develop to compete effectively in this changing environment.
What do you think? Have we convinced you that there's more to the cloud than simple IT outsourcing? And if we have, what does that mean to the typical executive? How does this change the way you would think about leveraging cloud computing for your business?