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The cloud model has the power to open doors to more efficient, responsive and innovative ways of doing business. There are many companies worldwide beginning to recognize cloud computing’s potential to enable new business models and develop a sustainable competitive advantage. As more and more companies embrace this potential, those that succeed will be the ones that carefully develop the power of cloud computing within their organization. The organizations embracing cloud computing are not only relying on cloud services to enhance internal efficiencies, but also to target more strategic business capabilities.
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Cloud Computing in the Enterprise
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Table of Contents
Memo...........................................................................................3
Executive Summary.....................................................................4
Problem Description....................................................................6
Background Research..................................................................8
Application.................................................................................13
Conclusion.................................................................................15
Works Cited...............................................................................18
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Memo
Jared StimsonResearch AssociateElectrical Engineering DepartmentNaval Postgraduate School
I’m a Research Associate and PhD student working in the areas of Computer Systems, Cloud Computing, Internet Engineering and Cyber Security. Needless to say I have extensive experience in Information Technology and I would like to apply my technical knowledge to business processes in order to create a competitive advantage. I would like to look at some of the ways that highly successful companies are using technology to gain an advantage and use my unique prospective to provide novel insights.
My thesis is that proper and innovative use of Advanced Information Technologies, such as Virtualization, Cloud Computing, Service Oriented Architectures and IT as a Service, can provide a competitive advantage.
I plan to accomplish this by using my own technical knowledge, case studies of successful implementations and a literature review of related publications on business applications of advanced technology. I plan to leverage my existing research to develop a plan for firm that specializes in Engineering. Through the process of doing the project research I’ll be using some case studies and I plan to pick a specific organization that specializes in the area that I work to apply the results of the project.
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Executive Summary
The cloud model has the power to open doors to more efficient, responsive and innovative ways
of doing business. There are many companies worldwide beginning to recognize cloud
computing’s potential to enable new business models and develop a sustainable competitive
advantage. As more and more companies embrace this potential, those that succeed will be the
ones that carefully develop the power of cloud computing within their organization. The
organizations embracing cloud computing are not only relying on cloud services to enhance
internal efficiencies, but also to target more strategic business capabilities. [1]
According to a study completed by IBM, the number of enterprises utilizing cloud computing to
enhance existing business models will more than double in the next three years. Business leaders
moving to capitalize on the rapidly growing and ubiquitously available data and the growing
popularity of social media will drive this explosive growth of cloud technology. To better
understand how organizations use cloud today and how they plan to use it in the future, IBM
surveyed more than 500 business and technology executives worldwide. According to the study,
as enterprises strive to better meet customers' needs and drive corporate growth, organizations
will increasingly look to cloud to develop new business models that will exploit the opportunities
made possible by these digital trends. In the study, 16 percent of the corporations surveyed said
they are already using cloud capabilities for innovation, such as entering new lines of business or
reshaping an existing industry. However, the study identified that by 2015, 35 percent intend to
use cloud technology to transform their business models. While just over half of those surveyed
identified improving organizational efficiency as a top business challenge today, only 31 percent
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anticipate it will be a top challenge in three years. Instead the study indicates that their focus is
shifting to growth and competitive initiatives in the future. [10]
62 percent of survey respondents said increased collaboration with external partners is a
key objective for adopting cloud; [10]
57 percent cited competitive cost advantages through vertical integration as a major
motivation; and [10]
56 percent pointed to opening new delivery channels and markets as an important
objective. [10]
Examples in the report show how cloud computing technology is being tapped to drive new
revenue streams and enhance business models, including an online marketplace for handmade
goods that has taken advantage of cloud computing’s cost flexibility to gain access to more
powerful analytics. The company was able to cost-effectively and efficiently analyze data from
about one billion monthly views of its website and use the information to create product
recommendations. [10] Cloud technology provided the company with access to tools and
computing power that is usually only available to larger retailers. The authors point to cloud
computing capabilities to mask complexity and enable custom user-defined experiences, as well
as its scalability and flexibility as main reasons companies are planning to move cloud based
services into their operations in the near future. “Cloud has the power to open doors to more
efficient, responsive and innovative ways of doing business, and we believe the companies that
will come out on top will be the ones that find ways to leverage it as a key point of
differentiation in driving business value,” Berman said in the report. “Whether they choose to tap
cloud to optimize, innovate or even disrupt their business models, they need to start working on
it now.” [10]
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Problem Description
Although cloud computing technologies are increasingly regarded as a technology game changer
because it offers the ability to offer services that are available anytime, anywhere however its
potential for driving business model innovation remains largely unutilized. [1] In fact, cloud
computing technology has the potential to fundamentally change competitive environment by
providing a new platform for developing and delivering business value added. To take advantage
of cloud computing ability to transform internal business operations, customer relations and
corporate value chains, enterprises need to determine how best to deploy cloud computing
enabled business solutions that promote significant and sustainable competitive advantage.
Below are some ways that an organization can utilize cloud technology to transform their
business processes. [3]
Organizations can use cloud services enhance their current business model to retain
current and attract new business by improving current products and services.
Cloud Computing technology can help a company extend their current business model by
creating new products and services.
Companies can use cloud computing technology to invent a new market and innovate in
ways that don’t seem obvious in the current markets, much like Apple did the Smart
Phone market.
Much like the ways an enterprise can use cloud computing to transform it’s business model, it
can also apply this technology to its value chain.
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Cloud computing can assist an enterprise sustain its current location in the value chain
while increasing its efficiency and an improving its ability to seek out partners, source
and collaborate with them.
Cloud computing technology can help an organization transform its role within its market
or enter a different market providing the platform for developing new operational
capabilities.
An enterprise could use this technology to build an entirely new value chain dramatically
changing market economics.
A survey of 572 business and technology executives across the globe suggests that while cloud
computing is widely recognized as an important technology, relatively few enterprises utilize it
to drive their business model. However, the survey also indicates this will change with more
organizations looking to cloud computing services to develop new business models, disrupt and
transform existing industries, and create entirely new markets. [3]
Research conducted by the IBM Institute for Business Value identified some transformational
business enablers driven by cloud computing technology. Enterprises are utilizing these business
opportunities to drive innovation that extends well beyond the Information Technology
Department. From the IBM Study, three models, that represent the extent to which an enterprise
uses cloud computing services to impact the company and market value chain: [10]
There are optimizers that use cloud computing services incrementally to increase
customer value while enhancing organizational efficiency. [10]
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Innovators substantially improve customer value through their development and
utilization of cloud computing services, which results in new revenue streams or
changing the enterprise’s role within their market. [10]
The disruptors use cloud computing services to create dramatically different value
schemes, as well as develop new customer segments. [10]
Whether an organization chooses to become an optimizer, innovator or disruptor depends on
various factors, including the amount risk they are willing to take on and the organization’s
current market environment. Organizational leaders must carefully assess their enterprise to
determine which model they should pursue and where they would like to see the enterprise go in
the future. Understanding this will allow them to leverage cloud computing services to develop
business models that stimulate long-term growth and profit. [10]
Background Research
Cloud computing is a model for providing on-demand network access to a shared pool of
configurable computing resources that can be quickly and easily provisioned and released with
minimal effort and intervention on the part of the service provider. The emergence of cloud
computing is changing the way enterprises purchase and manage computing resources. This is
providing a fundamentally different information technology acquisition model in which a cloud
computing technology provider may be responsible for a wide range of information technology
services, including hardware and software installation, upgrades, maintenance, backup, data
storage, and security. [8] This has allowed organizations to lower their information technology
investments because they can now purchase information technology resources on demand from a
cloud service provider while also eliminating the requirement to maintain legacy equipment
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beyond its useful life. Cloud computing services may also include environments for application
development and access to important technologies, software, and skilled information technology
personnel that would otherwise be too costly and difficult to obtain and maintain individually.
By cloud sourcing these technologies the provider can provide economies of scale to costumers
that may not be able achieve them on their own. [8]
Cloud computing technology is divided into three basic service models. Each model addresses a
specific business need. [8]
Infrastructure as a Service (IaaS). This is the lowest level of the cloud computing service
models. In this service model the customer is purchasing raw computational processing
power, data storage, and network transfer resources. These resources are usually
delivered as an operating system on a physical or virtualized server with some amount of
storage and network transfer provisioning. These offerings can be delivered as a single
server or as part of a collection of servers integrated into a virtual data center. In this
model the customer is usually required to provide some of the maintenance for the
infrastructure, but will not have physical access to the hardware.
Platform as a Service (PaaS). The next level up is where the customer is purchasing an
application or development environment on top of shared infrastructure. An example
would be a software development environment that could be accessed through some type
of user interface. The advantage of PaaS is that a developer can is provided with fully
functional development or production environment with out having to invest in the
configuration and deployment of the environment.
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Software as a Service (SaaS). At the top of the cloud computing service models is
software as a service. This is where the customer is provided with a complete application
and is usually accessed though a web interface.
Bellow are some of the technological needs Cloud computing seeks to address:
On-demand access. Rapid fulfillment of demand for computational processing.
Elasticity. Processing is only provided in the amount required and disposed of when no
longer needed.
Pay-per-use. Charges for resources are based on the quantity used.
Connectivity. Resources are connected to a in a way that allows data to flow to the
Internet as well as between other resources. This is usually transparent to the user.
Resource pooling. The infrastructure is shared, providing economies of scale.
Abstracted infrastructure. The end user does not usually know the exact location or the
type of hardware the applications are running on. They are usually provided with
performance metrics.
Little or no commitment. Users can terminate service at anytime in accordance with their
service agreement.
Along with hardware, software, and technology platforms, cloud computing technology delivers
additional benefits, including reduced IT costs and increased agility. With cloud computing, the
expenses generally associated with developing, procuring, administering, and maintaining
information technology infrastructure can be shifted to the service provider who can lower costs
by providing services to several customers. Cloud computing allows an enterprise to lower the
capital expenditures required for large information technology investments as well as operating
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and maintenance costs. This can free up more capital for core business activities, which can turn
cloud computing into an information technology related strategy to create competitive advantage.
However, enterprises still face many obstacles in the deployment cloud based services, including
an uncoordinated adoption, inadequate technical experience, and data security issues. There may
also not be an adequate understanding between the organization and the service provider about
the terms of services. An organization is unlikely to fully realize the benefits or related
competitive advantage when cloud computing services fall short of expectations. [8] While
cloud computing technologies should theoretically provide benefits to any organization, the
challenge of differentiating an organization and gaining advantage depends on implementation
and use of the cloud based services. Enterprises may differentiate themselves despite having
similar information technology solutions when the enterprise uses the IT resources to leverage
their core business processes and capabilities. Cost reductions, economies of scale, and
performance advantages are expected result when technical, managerial, and integration
capabilities work together to develop the cloud computing environment.
Despite implementing industry standard information technologies, an enterprise can still create
competitive advantage through close partner relationships with their cloud service providers. The
trust relationship can lower the cost of negotiations and also may enhance cooperation between
the organization and the provider by creating favorable conditions for constructive exchange and
shared governance. Cooperation and the coordination of operations can encourage the enterprise
and its cloud computing service provider to develop new ideas. [1] On the other hand, the
absence of a trust relationship could hinder exchange of information. Such conditions could
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prevent the organization from fully committing to the cloud service business model that could
diminish its effectiveness. Some of the pitfalls of a cloud strategy involve an enterprise with rigid
information technology infrastructure that generally lacks the ability to fully implement a cloud
strategy. [4] IT managers who lack business experience and IT technical understanding required
to fully exploit cloud computing technologies or integrate a complete cloud computing solution
across several business units. While an enterprise without the required technical knowledge and
managerial ability may achieve some performance gains and cost reduction, but it will not create
a competitive advantage simply by using transferring its information technology to a cloud
service provider.
Prior to developing a cloud computing strategy, an enterprise should assess its technical and
managerial capabilities and also its ability to develop relationships with its cloud computing
service providers. The extent these abilities are present will determine how well the cloud
computing services will assist the enterprise achieve its goals and competitive strategy. An
enterprise without the proper technical and managerial capabilities should develop them prior to
taking on a cloud computing implementation to ensure they develop the best IT environment for
the organizations business model. Having the proper information technology capabilities can
mean a greater probability of cloud computing success. [4] Without it the enterprise is unlikely to
reduce information technology costs, achieve economies of scale and will not be able to redirect
its resources to important business operations and core competencies that yield long-term
competitive advantage.
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Application
To provide technical and economic advantage, a cloud computing endeavor must be developed,
as well as implemented, in a fashion that enables the organization’s core competencies. Because
merely utilizing the services of a cloud service provider does not by itself differentiate an
enterprise from its competitors the development phase is even more important than
implementation phase. The organization’s competitors likewise can implement cloud computing
services and take advantage of the resulting information technology efficiencies. [9] However, a
successful cloud computing deployment requires the achievement of differentiating
organizational benefits that are a source of uniqueness and competitive advantage. Cloud
computing success is measured through three categories of derived benefit: strategic, economic,
and technological. Strategic benefit refers to an enterprises ability to focus on its core business
operations that are possible with a move to cloud computing. Economic refers to an enterprise’s
ability to utilize the cloud service provider’s experience and technological resources to reduce its
information technology expenses. Technological refers to an enterprises access to the latest
technology and experienced personnel, reducing the risk and cost of technological obsolescence.
An organization’s technical capability represents its physical assets or collective resources that
give an enterprise its functionality and a flexible, scalable base. It means being agile enough to
respond quickly to technology changes in the market without hindering the implementation of
new technology. An enterprise’s unique technical capabilities together with cloud computing
could yield improved time to market and a streamlined business processes differentiating the
business from its competitors. [4] The enterprise could also integrate the cloud computing
technologies with existing process specific platforms and create opportunities for synergy across
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different business units; the business and economic opportunities of new technology could be
realized more quickly and cost effectively if deployed in a cloud environment. Cloud
technologies could also reduce the complexities of the organization’s information technology
space, enabling the its IT department to deploy new technology more efficiently and effectively.
[7]
In the end, the likelihood of an enterprise implementing a new information technology system
successfully, whether it by cloud based or not, is a directly proportional to managers’ ability to
coordinate the operations required for the development and implementation effort. The human
capital associated with its information technology capabilities are as critical to the enterprise
achieving the benefits of cloud computing as the technology itself since they represent the
accumulated training, experience, and insight behind the technology needed to implement cloud
computing services. Managerial capabilities includes the business and technical skills, as well as
enterprise knowledge, required to see the potential of new technologies and their ability to
influence the enterprises overall performance. [2] An IT manager’s technical skills might include
a system of systems approach to integrating emerging technologies into an existing information
technology infrastructure. This coupled with the project management, leadership skills, and
technical skills to utilize emerging technologies before of the competition. Better managerial
capability improves the effectiveness of integrating new technology into existing business
processes. [2]
Enterprises with capable IT managers with strong technical and business skills are be better
positioned to distinguish among the services available from cloud service providers and
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implement cloud computing based solutions that enhance the organization’s business strategy.
Managerial capability also includes the enterprise knowledge required to see future business
needs and understand how new technologies can affect the business strategy. An important yet
often overlooked factor in a successful cloud based service deployment is the trust relationship
between the client and the service provider. The capable IT manager can facilitate that trust and
convey it to the organizational leadership. [5] As the trust relationship increases with a cloud
provider, the client realizes greater IT economies of scale and deployment success because the
enterprise can feel confident in the decision to utilize the cloud services and focus on its core
business competencies. The relationship capability reflects an ongoing integration between IT
management and the cloud based service provider where the service provider has a clear
understanding of how the organization utilizes the cloud services and how they benefit the client.
The enterprise also needs to be confident the cloud computing service provider is working to
enhance its ability to leverage its IT resources in conjunction with its cloud services. In cloud
services deployment, success depends largely on the ability of the enterprise’s technical,
managerial, and relational capabilities to work in conjunction develop a system that focuses on
the businesses core competencies and create efficiencies in the value chain. [7]
Conclusion
Many advanced technology and concepts have been generated by the explosive growth of
Internet. Things such as distributed computing and virtualization reflect the revolution of
information technology. These in turn promote the development of the Internet and bring more
technologies and concepts into life. Along with this the concept of cloud computing recently
becomes a hot topic in the Internet field. Being focused and promoted by the information
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technology industry, cloud computing is no longer just a buzz word in people’s mind but an
important project to be carried out. [7]
Cloud computing is a model for providing on-demand network access to a shared pool of
configurable computing resources that can be quickly and easily provisioned and released with
minimal effort and intervention on the part of the service provider. The emergence of cloud
computing is changing the way enterprises purchase and manage computing resources. This is
providing a fundamentally different information technology acquisition model in which a cloud
computing technology provider may be responsible for a wide range of information technology
services, including hardware and software installation, upgrades, maintenance, backup, data
storage, and security. [6] This has allowed organizations to lower their information technology
investments because they can now purchasing information technology resources on demand from
a cloud provider while also eliminating the requirement to maintain legacy equipment beyond its
useful life. Cloud computing services may also include environments for application
development and access to important technologies, software, and skilled information technology
personnel that would otherwise be too costly and difficult to obtain and maintain individually.
By cloud sourcing these technologies the provider can provide economies of scale to costumers
that may not be able achieve them on their own. [8]
Cloud computing services can provide up to date and cost effective information technology
functionality to small and large organizations alike. While there are many benefits associated
with cloud computing technologies, the key to success is for the enterprise to use its own
capabilities and core competencies to leverage cloud based systems in a way that creates
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efficiencies in the market and sustainable competitive advantage. All other things being equal,
organizations that develop and strengthen their information technology related capabilities along
with implementing the cloud based services are more likely to achieve greater value from their
investment compared with organizations that implement only a cloud computing resources
without investing in other IT related capabilities. [8]
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Works Cited
[1] A. Aljabre, “Cloud Computing for Increased Business Value,” International Journal of Business and Social Science, vol. 3, no. 1, pp. 234–238, 2012.
[2] M. Armbrust, A. Fox, R. Griffith, A. D. Joseph, R. Katz, A. Konwinski, G. Lee, D. Patterson, A. Rabkin, and I. Stoica, “A view of cloud computing,” Communications of the ACM, vol. 53, no. 4, pp. 50–58, 2010.
[3] S. J. Berman, L. Kesterson-Townes, A. Marshall, and R. Srivathsa, “How cloud computing enables process and business model innovation,” Strategy & Leadership, vol. 40, no. 4, pp. 27–35, 2012.
[4] D. BUDRIENĖ and L. ZALIECKAITĖ, “CLOUD COMPUTING APPLICATION IN SMALL AND MEDIUM-SIZED ENTERPRISES,” Issues of Business and Law, vol. 4, no. 1, pp. 119–130, 2012.
[5] V. Chang, G. Wills, and D. De Roure, “A Review of Cloud Business Models and Sustainability,” 2010, pp. 43–50.
[6] D. Durkee, “Why cloud computing will never be free,” Communications of the ACM, vol. 53, no. 5, p. 62, May 2010.
[7] Z. Fang, J. Chen, M. Yi, Z. Wu, and H. Qian, “Cloud Computing Business Model Based on Value Net Theory,” 2010, pp. 462–469.
[8] G. Garrison, S. Kim, and R. L. Wakefield, “Success factors for deploying cloud computing,” Communications of the ACM, vol. 55, no. 9, pp. 62–68, 2012.
[9] Dhar, S. (2012). From outsourcing to cloud computing: Evolution of IT services. Management Research Review, 35(8), 664-675. doi: http://dx.doi.org/10.1108/01409171211247677
[10] S. J. Berman, L. Kesterson-Townes, A. Marshall, and R. Srivathsa, IBM Institute for Business Value. “The Power of Cloud: Driving Business Model Innovation”. Strategy and Transformation. February 2012.
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