Cloud services are already demonstrating clear value in the delivery of IT functions and enabling the consumption of solution-packaged IT services.
But the key to creating more business value from cloud services comes not from implementing them in an otherwise unchanged organisation but more from using cloud services as a catalyst to transform organisations via associated people and business process changes.
True business transformation is unlikely to occur as a result of the implementation of cloud services alone as they mostly represent a substitute of existing IT functionality or a substitute of software for human labour. Instead, business transformation requires people and business process changes to be added to the mix of cloud services.
But because business transformation initiatives typically involve high risk/reward scenarios, many organisations are reluctant to pursue them, and those that do often require significant financial justifications.
The economics of public cloud services seem compelling enough in isolation (i.e., renting only what you need and when you need it versus buying solutions to accommodate peak capacity and incurring the associated costs of deploying and supporting it over time), as long as the trade-offs relating to potential loss of IT control and the impact on data security, privacy, and location are acceptable.
Indeed, IDC analysis using has shown that moving application development to the public cloud can result in a 73 per cent cost saving when compared with more traditional approaches.
However, some business cases and return-on-investment (ROI) calculations related to cloud services are problematic because they rest on a bed of assumptions, including the degree to which the future costs and benefits of business transformation are understood and included.
Likewise, the impact of cloud services on the quality of an organisation’s output (i.e., its own products or services), or the ability of an IT department to deliver services in support of its overall mission, is hard to measure financially but is an important element of new business value.
Indeed, many end-user organisations are keen to point out that cloud services have some benefits that are harder to quantity financially than others. One oft-quoted benefit is the increased agility of the IT department. This is about both adaptability to change and increased developer productivity. For example, cloud integration services can be a substitute for professionals providing manual systems integration tasks, and some customers have reported up to 66 per cent faster and/or 30 per cent cheaper integrations through their use of such services.
Another ‘financially unquantifiable’ benefit that is often identified from IDC’s regular discussions with end-user organisations stems from the high-quality nature of cloud services. Simply put, cloud services are often more standardised than many of the inputs created by humans, and this can reduce one potential source of error or variability within the overall process of what the rest of the organisation does.
Crafted correctly, business cases and ROI calculations are tools that can help justify large expenditures, but end-user organisations must explicitly outline their assumptions about the degree of business transformation to be involved (e.g., the degree of transformation, measured in time or dollars, that they are willing to accommodate) and the potential impacts on product or service quality. In addition, organisations must also monitor for actual business benefits that emerge whether or not they were planned at project onset.
For organisations that want to unlock more value from cloud services, the real opportunity (and risk) comes from using cloud services as a touchstone for proposed changes to business processes, models, strategies, or organizational structures.
IDC believes the economic benefits of implementing cloud services — holding all other things constant — will begin to reach a point of diminishing returns unless business transformation becomes part of the equation.
For example, once an organisation consolidates its three datacenters into one, or moves to cloud, or embraces software-defined networks and datacenters, how much more IT efficiency can reasonably be expected? Tackling business transformation involves a higher risk/reward scenario, and this is why so many end-user organisations seek outside help from service providers and industry experts.
Ultimately, cloud services are both a delivery model and a consumption model, and both elements need to be factored into compelling business strategies aimed at extracting more value from such services. This is not only true for the products or services created for an organisation’s customers but also for “delivery” in the context of providing services for an organisation’s internal users and the services an organisation consumes from external providers.
Most cloud providers and end users have been focusing, rightly, on the delivery side of cloud first (since you have to build something before you can use it), but it’s the consumption side of the cloud model where end-user organisations will find more interest and lasting value. That value may or may not be immediately quantifiable in financial terms, but implemented alongside the right mix of human inputs and process changes, cloud services undoubtedly have a key role to play in the quest for true business transformation.
The columnist is group vice president and regional managing director for the Middle East, Africa and Turkey at global ICT market intelligence and advisory firm International Data Corporation (IDC). He can be contacted via Twitter @JyotiIDC