By now, most will agree that cloud computing is a major transformational force in the world of IT. But, cloud has not the easiest concept to grasp. Not that long ago, even people who agreed that something big and profound was going on, were not totally quite sure what it was they were excited about. “There is a clear consensus that there is no real consensus on what cloud computing is,” was the overall conclusion of a June, 2008 conference on The Promise and Reality of Cloud Computing. Cloud has continued to evolve and advance over the ensuing years. People are no longer starting their sessions by saying: “let’s define cloud computing,” said an article on a 2013 cloud conference.
I find it helpful to look at cloud along two key dimensions: as a technology to improve IT productivity, and as a platform for enabling business innovation. A 2012 survey of business and technology executives found that two thirds of respondents viewed cloud as a leading priority for their IT organizations, while one third said that it was a company-wide business priority. Only one company in six viewed cloud as a way of fostering business innovation.
An increasing number of companies are now deploying cloud-based solutions. Most are focused on improving the economics of IT. They are looking to cloud to help them expand their current offerings without major investments in additional IT infrastructure. Cloud offers financial flexibility, reducing fixed IT costs by shifting from capital to operational, pay-per-use expenses, as well as the ability to easily and economically scale business operations by provisioning IT resources on an as-needed basis. In addition, cloud can help business users become more agile and keep up with the fast pace of technological and market changes. Turning to an external cloud service provider is often a faster and less costly way of prototyping and deploying a new application than relying on the internal IT organization.
But, for many companies, the use of cloud to foster business innovation and growth remains elusive. Some of the reasons are organizational and cultural. A recent McKinsey study on Cloud and Innovation observed that “The problem in many cases is that adopting cloud technologies is an IT initiative, which means that cloud solutions are all around improving IT and IT productivity. But that’s not where growth is going to come from. . . Incremental investments in productivity don’t drive growth. . . Investments need to go into innovation and disruptive business models . . . Unless companies are asking themselves how to use the cloud to disrupt their own business models or someone else’s, then adopting the cloud is just another IT project.”
I agree with these points. But, I also believe that another major reason lies behind the struggles faced by many companies in leveraging cloud for business innovation: the close connection between cloud and IT-based services. Let me explain.
I think of cloud as being fundamentally a kind-of Internet of Services, delivering mass customized services over the Internet to billions of smart mobile devices and trillions of smart sensors, and turning data centers into factories for IT-based services on an industrial scale. A somewhat similar point was made in a 2013 report by the McKinsey Global Institute, Ten IT-enabled business trends for the decade ahead, which listed cloud as one of its top trends and succinctly described its key value as realizing anything as a service. The link between cloud and innovation is closely intertwined with the increasing number and variety of cloud-based services.
For the past 15 years, I’ve been involved in initiatives to apply technology and innovation to services, including the creation of service science as a new academic discipline. I’ve learned from personal experience that service science is an even harder concept to explain than cloud computing. If the business value of cloud is best understood as the Internet of Services or realizing anything as a service, we should not be surprised that many may have trouble understanding us, because it’s not so easy to explain what we mean by a service in the first place.
The service sector is by far the largest in the global economy, comprising about 65 percent of the world’s overall GDP, between 70 and 80 percent in countries with more advanced economies and around 80 percent in the UK and the US. But, even though services constitute such a large portion of the world’s GDP and jobs, their nature remains vague - hidden from view in plain sight as if it were some kind of dark matter. It’s easier to define the service sector by what it doesn’t include: it’s not agriculture or fishing, and it’s not manufacturing, construction or mining. Perhaps the one definition everyone can agree to is one attributed to The Economist: a service is “anything sold in trade that cannot be dropped on your foot.”
In 2009, the Royal Society, - the UK’s national academy of science, - released a report: Hidden Wealth: the contribution of science to service sector innovation. This excellent report examined the impact of science, technology, engineering and mathematics (STEM) on innovation in the service sector. “Our main conclusion . . . is that services are very like to remain central to the new economy, not least because we are at or near a tipping point: innovations now underway seem likely to change dramatically the way we live and to generate many services (though few can be predicted in detail at present). . .”
“Scientiﬁc and technological developments (many of which originated in fundamental blue skies research), have precipitated major transformations in services industries and public services, most notably through the advent of the internet and world-wide-web . . . However, the full extent of STEM’s current contribution is hidden from view - it is not easily visible to those outside the process and is consequently under-appreciated by the service sector, policymakers and the academic research community.”
Services are ubiquitous across many sectors of the economy, e.g., finance, healthcare, retail, creative industries, business support, education and transportation. Yet, their somewhat elusive nature has made it difficult to support innovation in services, and in particular, the kind of R&D in the services sector that has worked so well in the industrial sector for a very long time.
Technology advances have led to all kinds of innovative products ever since the advent of the Industrial Revolution over two hundred years ago. In comparison, IT, - the services sector equivalent of the steam engine that powered the Industrial Revolution, - is only a few decades old. And, the transition to an information-based, service-intensive digital economy truly started when the Internet and World Wide Web took off in the mid 1990s, - a short time ago in historical terms.
The combination of cloud and mobile devices is now enabling us to realize just about anything as a service, from maps and navigation, to money and payments, media and entertainment, healthcare and education, and on and on. But doing so effectively, at the scale required to connect to billions of people and huge numbers of sensors in Internet of Things applications, requires the massive industrialization of services being ushered by cloud computing.
You couldn’t possibly support those huge volumes of services and devices with custom, ad-hoc architectures. Cloud-based services require a much more standardized, mass customized, process oriented, industrialized approach to production, including the application of advanced technologies and rigorous science, engineering and management methodologies.
This is the fundamental challenge that many companies face as they struggle to compete with born-to-the-cloud startups, as well as with older leading edge companies. These fast moving competitors are not only using cloud as a technology to improve IT productivity, but they are also developing exciting new cloud-based offerings and business models. The traditional, way of doing business is under siege and must evolve. Cloud-based innovation is a major part of that evolution.