Cloud Clairvoyance: A Few Predictions

You probably noticed that the world did not end on May 21, which means we can eliminate one more excuse for putting off thinking about cloud computing and what it might mean to your business. To be clear, I am neither a cloud computing expert nor a clairvoyant in terms of seeing the future. But based on my experience with many different technologies, I have a pretty good idea of how cloud computing is going to play out and what you can do to prepare.

A disclaimer: my interpretation of the future germinates from concepts from the book Fast Innovation by Michael George and on the propensity of companies to constantly chase best practices. George brings forth very interesting insights related to growth and innovation. Most notably, he points to disruptive innovation as one of the drivers for companies seeking to break into the S&P 500. Conversely, lack of disruptive innovation helps explains why there is high turnover in the S&P 500.

When companies are in the top quartile of growth, they are typically enjoying the fruits of introducing disruptive products to the marketplace. For well-established firms, such innovation is much more difficult, given that it requires “eating your own children,” or disrupting your previous innovations. As a general rule, companies in the second growth quartile have strong management teams focused on improving execution and deriving profit. These companies study the success of other companies and adopt as best practices proven business processes and technology, but they are not typically driving much innovation. It is in the combination of these two management disciplines – call them the first and second growth quartile approaches – where the future of cloud computing adoption looks clearest.

This line of reasoning leads me to the following conclusions:

• High-growth companies with disruptive products are going to adopt cloud computing more rapidly than well-established companies for three reasons:
  • In driving growth, business processes are less important than product development and time to market. Cloud computing offers the fastest time to implement as long as you can put in place relatively generic processes.
  • High-growth firms can afford to invest in cloud computing. They are probably enjoying high margins as the competition tries to catch up.
  • Internally, the IT department does not view cloud computing as a threat, but rather as an opportunity to support corporate growth initiatives. Plus, there is likely only a limited legacy IT base to convert to cloud models.

• Our second tier of well managed and execution-driven companies will study the market and the lessons learned and best practices adopted by their high-growth counterparts and discover:
  • There is an opportunity to cut down time to market on new products, vs. their previous approach.
  • Early adopters (those firms that went directly to cloud models) did not have to bear the burden of switching costs. Our second-tier firms will recognize this and seek such flexibility as a requirement for future IT investments. For instance, whichever service provider or supplier they choose for initial cloud migrations, they will want to retain the flexibility to change vendors and take their data with them in the future. They will be keen to avoid vendor “lock-in” when it comes to the cloud.

• Recognizing that switching costs are the big obstacle of moving to the cloud, many service providers will evolve their models and get creative to contain, shift or eliminate the costs of switching. We have seen it happen all the way up the chain and in different classes of spend, from servers to PCs to cell phones, as well as in the services space (e.g., BPO). Well-managed, second growth quartile companies will demand it. If switching costs are not virtually eliminated, they will never move to the cloud.

• Finally, companies in the bottom half of performance are generally risk averse in these situations. They will consider cloud computing only after the price drops and the performance record is firmly established.

How long will this cycle take? My best guesstimate is 6-10 years. I base this assumption on the overall time it will take for second-tier firms faced with major ERP upgrades to run the cycle and evaluate their options. They will take their time in carefully assessing and analyzing the total cost of ownership, business case and risks of migrating. It’s also worth noting that, at some second-tier firms, the CEOs and CIOs who made their marks based upon current technologies may be resistant to cloud computing. Those executives may have to leave before large-scale cloud adoption can take place.

So what should you do now?  The answer – as is so often the case in IT – is, “it depends.” First and foremost, it depends on what type of company you are and the overall corporate mission. Risk-averse companies will continue waiting it out until the path ahead is blindingly obvious, while firms with growth aspirations should do three things:

1. Gather intelligence on the companies in the top growth quartile and the platforms they are deploying now to sustain growth. Today’s leading-edge approach is likely to become tomorrow’s clearly established best practice.
2. If you are working with systems integrators or software providers, familiarize yourself with their view of the cloud. It’s not too soon to start the dialog and build relationships with their cloud experts.
3. Look for internal opportunities where a new product or innovation program could be supported via a pilot cloud adoption. The individuals that are driving that part of the business will likely have a much higher risk tolerance if they know speed to market is the pay-off.

If you’ll forgive a bad pun, there is no doubt that the future of computing will be mostly cloudy. But just how soon it gets cloudy at your company and in your IT shop will depend on just how much you need to grow and how fast.