Competition: Will the cloud really make a difference?
A recent McKinsey research foresees more than $1 trillion in run-rate EBITDA across Fortune 500 companies up for grabs in 2030 from cloud cost-optimization levers and value-oriented business use cases. The case of Moderna delivering the first clinical batch of its vaccine candidate (mRNA-1273) to the US National Institute of Health for phase one trials just 42 days after the initial sequencing of the virus as a result of it adopting cloud technology is just one of clear example of how cloud computing can unlock value for any organization in an extraordinary way.
Management consultants have over the past few years devoted their attention to unraveling how companies can best capture value by the adoption of on-demand supply of IT resources on the internet that are available at pay-as-you-go pricing called cloud computing and why every organization should do it. There is today no lacking in literature on cloud computing and how it can help improve performance especially in times of rapid changes. And it’s paying off!
In another recent study by O’REILLY, roughly 90% of their respondents indicated that their organizations are using the cloud and the number continues to increase. Another insight from Gartner shows that global cloud revenue is estimated to total $474 billion in 2022, up from $408 billion in 2021. That is why hyperscalers are investing a lot in the opening of new data centers around the world.
Cloud can help a company unlock value in extraordinary ways. Organizations adopting this tool are attracted by the promise of flexible infrastructure capacity, rapid capacity deployment, and faster time to market for digital products. Cloud computing can also make companies more resilient by helping them to keep costs low, reducing overall IT spend by as much as 10% overall according to a report by BCG Platinion. While the benefits have always been clear, the COVID-19 crisis has made these benefits even more important as organizations realize their need for speed and agility.
The central and most important truth about cloud computing is that it can shift the productivity frontier of any organization. Productivity frontiers shifts as new technologies and management approaches are developed and new inputs become available. Organizations are therefore embracing cloud adoption in hope of keeping up with the shifts in productivity frontier. Cloud adoption enables organizations to improve their operational effectiveness and that can lead to superior performance. However cloud adoption is not enough to give a company a competitive advantage. Few organizations have competed effectively on the basis of operational effectiveness alone over an extended period and keeping ahead of the competition keeps getting difficult especially in times of rapid change.
This is why it’s important to have the right perspective about adopting cloud technology. As with every technology, cloud computing is what we refer to in strategy as best practice. Best practices refer to adopting and applying the latest management thinking and technology in a business. It is doing the same thing with competitors in a better way. Cloud computing is effectively raising the productivity expectation for everyone. But although such competition produces absolute improvement in operational effectiveness, it will result in relative improvement for no one. The resulting major productivity gains are captured by customers and technology suppliers, not retained in superior profitability by organizations.
There is a second reason why cloud computing is not enough to give a company a competitive advantage. Operational effectiveness will give an organization an advantage until the competition adopts the same technology and/or management thinking. The more competitors benchmark, the more they look alike and competition becomes a series of races down identical paths that no one can win. Competing on operational effectiveness alone is mutually destructive.
What this implies is that profiting from the huge potentials of cloud computing requires strategic effectiveness. Companies can only have superior performance in a sustainable way to the extent they leverage cloud technology to differentiate themselves. Strategy defines how differently a company approaches the market. It is the company’s unique approach to competition and the competitive advantages on which the unique approach is based. This happens as a result of the company’s ability to choose a market to serve and carefully choose and arrange the activities leading to the creation of value for it’s chosen market in a unique way.
The uniqueness of a company in the sense of strategy comes from the summation of the unique activities that make up the entire chain, which Michael Porter called, value chain. Uniqueness comes by not just doing activities different from how others do that, but by linking those activities in a way that is peculiar to your company that produces a unique fit or configuration that is original to your company.
It is this unique chain of activities that gives a company its strategic position. Now, leveraging cloud technology to create a competitive advantage will require deploying cloud technology to perform activities better and most importantly achieve a better fit and reinforcement in the value chain.
Dr Reuben works with governments and organisations around the world to strengthen institutions for superior performance. He convenes international and regional events that inspire conversations, connections and collaborations among leaders in the pursuit of their goals.