Business Benefits and Impacts of Using the Cloud (Trends and Insights)

This article explores common objectives many companies have when using cloud technology, as well as the impacts they may need to consider. When companies use the cloud to reach customers and support employees, many business areas may be impacted, and IT organizations need to adapt to changing IT functions.

The following contributors provided input for this post: Blessing Sibanyoni, Brian Loomis, Johan Klut, Larry Hanthorn, Mary Lynn Pontier, Peter Deane, Robbi Laurenson, Sree Sundaram, and Stephen Kell.

Using the Cloud to Add or Improve Revenue Streams

Consumers have become accustomed to using cloud-based services and devices; as a result, companies have customers who are more informed and more demanding, and expect rapid responses. For example, banks are exploring how they can use cloud-based services for a variety of new opportunities, new service possibilities, and new markets. In addition, some banks are developing mobile apps that can work with these services.

Other companies are developing cloud-friendly APIs so that their customers and business partners can more easily connect their own systems to the companies’ systems, regardless of what technologies each party uses.

Using the Cloud to Improve Agility

Many companies see cloud technology as a way to improve their own agility and flexibility in dealing with customers:

• By delivering services to customers through the cloud, companies can reduce their time to market, which makes it easier for them to keep up with changing markets and provides a competitive advantage.
• Using cloud-based services, companies can reach a wider range of customers effectively.

By subscribing to cloud-based services for their employees to use, companies seek to improve the agility of their own business processes:

• Using cloud-based services, companies can more easily accommodate a global work force.
• Companies have the option of purchasing specialized services instead of building and running them internally. For example, a company that subscribes to a big data service doesn't need employees to manage or crunch the data; it just needs employees who can interpret the data, and can leave the management of the data and the system that supports it to the service provider’s specialists.

Using the Cloud to Reduce IT Costs

At many companies, IT organizations are exploring ways to reduce their workloads (and costs) using cloud-based services; in particular, by replacing in-house systems with cloud-based services from external providers. Some IT organizations are outsourcing specialized services, so that they do not have to maintain the necessary systems and expertise.

An increasing number of IT organizations are outsourcing email service for these reasons. Others are outsourcing data management, as described previously. IT organizations are also exploring ways to replace legacy systems with cloud-based services in order to avoid issues with the support lifecycle.

Some IT organizations are subscribing to evergreen services (services that undergo frequent changes and updates) in order to reduce their own burden of managing updates. The post Evergreen IT—Getting the Most Value (Trends and Insights) explores the factors and impacts that come with this approach to using cloud-based services.

Factors that Affect How Businesses Can Best Use Cloud Technology

Companies have found that using cloud-based technology can impact their operations in a number of ways, both intended and unintended. To get the best value out of a cloud-based service, the IT organization may need to change:

• How it interacts with the business units
• The way it procures and delivers services
• The way it manages service updates
• The way it manages security

Effect on the Relationship between IT and the Business

The expectations of employees are changing; many have more advanced technology at home than they do at work. They are accustomed to using social tools to communicate, and want access to them at work as well as at home. More and more, employees are demanding that companies either allow them to work using their own devices, or provide similar technology. Employees are also pushing for these companies to modify their formal business processes to produce a more flexible work environment.

In addition, business units are expecting increasingly agile and rapid response from IT organizations. In some companies, IT organizations are still using processes that were designed for services that took many months or years to design, build, and deploy. In such companies, the growing gap between the expectations of the business units and the actual responses of the IT organization has been highly frustrating for the business units.

For example, the Human Resources unit of one business decided to use a social network to link and communicate with recruits. To accomplish this, HR requested that IT procure appropriate subscriptions to Yammer. In response, the IT organization wanted to consider options and review business cases. However, as far as HR was concerned, the decision was already final and they were ready for the service.

Microsoft Architects have seen that this kind of frustration can lead business units to circumvent their IT organizations to use new technologies and services. In the past, business units did not have this capability, but with cloud-based services, such maneuvers are increasingly feasible.

IT organizations are not used to dealing with this kind of behavior, and are coming to terms with the idea of adapting in order to maintain their authority (or even their relevance). They need to update their processes to account for new services and engage with the business units to provide appropriate services in a timely manner.

Service Procurement and Delivery

Cloud technology has provided the opportunity for some companies to change the way they outsource. Historically, many large-scale service providers have relied on economies of scale to produce stable, non-changing services. In addition, the actual outsourcing deals often involved multi-year contracts between the company and the service provider.

Large enterprises have found that such commitments hinder their flexibility and agility. If the IT organization identifies a provider that fits the company better, the existing contract may prevent them from changing providers. If the internal applications that the IT organization manages depend on a service from an external provider, the IT organization may be limited in how they can change the internal applications until the service provider makes compatible changes. In a business environment where flexibility and agility are increasingly important, such limitations are becoming significant problems.

These enterprises see cloud-based services as potentially much more agile than traditional outsourced services. As the existing contracts conclude, enterprises are beginning to experiment with different types and scales of outsourcing arrangements available with cloud-based services.

Some Microsoft Architects predict that as companies increasingly rely on services that operate across public networks and infrastructure, the companies may become more tolerant of non-guaranteed service levels. In addition, companies may find that they can optimize their agility and flexibility by compromising between services that offer "best of breed" performance and those that offer "fit for purpose" performance.

Update Management

For cloud-based services, updates and feature changes are the responsibility of the service provider rather than the IT organization. This can reduce the  workload of the IT organization. However, the fact that the IT organization no longer controls updates and maintenance intervals brings its own complications.

The significance of this factor varies depending on the type of service involved. So-called evergreen services change and update frequently (on the order of weeks or months), resulting in a number of challenges for IT organizations. Other services may not change nearly as rapidly.

Even when using services that do not change frequently, the IT organization needs to keep an eye on the provider’s update schedule and the way the service integrates with in-house systems. The IT organization is responsible for keeping the in-house systems compatible with the cloud-based service. Some IT organizations minimize this issue by strictly limiting such integration, but this solution is not always practical.

In companies that produce APIs or other applications that depend on such cloud-based services, developers need to pay much more attention to version control and release processes, so that updates do not disrupt customers.

Security

The security implications and challenges of cloud technology are complex. Considerations about security and cloud services are covered in the post 10 Questions to Evaluate Security and Cloud Services (Trends and Insights).

Conclusion: Changing the Culture of the IT Organization

Using cloud-based services, companies have new opportunities to add or improve revenue streams, improve agility, and reduce IT costs. However, managing an environment that includes (or delivers) cloud-based services affects the IT organization's emphasis and its operational model. Using cloud-based services is likely to require an IT organization to:

• Develop closer links to the business units it serves, to monitor its needs and to provide appropriate services.
• Consider new options for purchasing services, and reevaluate standards for delivering services.
• Revise management and operations processes to account for services that the IT organization does not control.
• Update security measures and models to address the way that employees use external services.

The extent of these effects depends in part on the types of services the business wants and the extent to which those services must integrate with in-house systems. As a result, the IT organization is likely to need to shift its culture and mindset as well as its capabilities.

You Might Also Like

• Welcome to the Value Realization Team’s Blog
• 10 Questions to Evaluate Security and Cloud Services (Trends and Insights)
• How Businesses Are Using App Stores for Customers and Employees (Trends and Insights)
• When Does IT Create Shareholder Value (Trends and Insights)
• Evergreen IT—Getting the Most Value (Trends and Insights)

Comments

• Anonymous
  July 15, 2014
  Microsoft Enterprise Architects have observed many businesses moving services out of the realm of IT
• Anonymous
  July 16, 2014
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• Anonymous
  July 21, 2014
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  July 23, 2014
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  July 25, 2014
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  August 04, 2014
  The comment has been removed
• Anonymous
  August 11, 2014
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  August 14, 2014
  In the prior post, “ Driving Business Transformation through Business Capabilities (Trends and Insights
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  August 20, 2014
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  September 03, 2014
  How do we measure value and value realization in the public sector? Public projects are typically conducted