Cloudonomics: The Business Value of Cloud Computing, + Website

Aligning Cloud with Strategy

Different firms will find different opportunities to leverage the cloud. Today there are many companies in traditional businesses: farming, trucking, pharmaceuticals, hotels, oil and gas. IT can help these companies in different ways: irrigation optimization, farmhand tracking, route optimization, yield management. For a cost leadership strategy in such a traditional company, reducing costs within the IT function via the cloud is beneficial but not strategic. After all, if IT costs are an average of 4% of revenues, and the cloud could help reduce IT costs by 25%, the net impact to the corporation is only 1%, or perhaps a few percent of its cost structure, hardly a compelling enabler for a cost-leadership strategy. However, in such a company, to the extent that cloud-based services can optimize supply chains or operations logistics, the impact could be substantial.

Another case is the company that sells an informationalized offer (i.e., a product that is enhanced by IT). General Motors’ OnStar is a good example. The product itself—a Corvette, say—is enhanced not just by a sunroof or V8 engine but also by features or components enabled by networked IT. It’s not just products that can be enhanced: An insurance company that adjusts claims on the spot, such as Progressive, using wireless uplinks, accomplishes the same thing, as does a Personal Video Recorder such as TiVo that leverages online connections for program updates as well as recommendations.