Cloudonomics: The Business Value of Cloud Computing, + Website

Comparative Advantage and Core versus Context

Even if a company has the same competencies that a service provider does, the economic theory of comparative advantage—to which we owe a debt to a two-century-old treatise written by economist David Ricardo—suggests, in simple terms, that it is better to focus on what you can do best and trade for the rest.1 Both parties to the trade benefit.

Geoffrey Moore, in what might be considered a more recent formulation of this argument, has suggested that companies focus on core activities—those that strategically differentiate them from the competition—and leave context activities—even ones that they are perfectly capable of doing—to others.2 In other words, in today’s attention economy, a frenetic world of hypercompetition where leadership time is the scarce resource, it is best to focus on those areas that mean life or death for the company rather than things that would be nice to do if only you had the time.3

In this case, the cloud creates value by enabling a greater focus on those activities that IT and non-IT functions within the firm can and must do uniquely well to succeed—or even survive.