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MIS Quarterly Executive Vol. 11 No. 1 / Mar 2012 1
© 2012 University of Minnesota
Business Value of Clouds: Learning from Users
Business Value of Clouds: learning from
users
Bala Iyer
Babson College (U.S.)
John C. Henderson
Boston University
(U.S.)
Executive Summary
Cloud computing enables rms not only to mitigate risks in today’s hyper-competitive
business environment, but also to gain competitive advantages. Based on eld interviews
with seven early adopter companies, supplemented by some published reports, the
authors describe six cloud computing benet patterns and ve business-related strategic
risks that can be managed using cloud computing. Dynamically dealing with a mix of
legacy systems and cloud solutions is but one of the dimensions of management required
today as companies compete as members of ecosystems that include such entities as
competitors, complementors, infrastructure providers, development platform providers,
and orchestrators..
INTRODUCTION
“At Partners, we do not describe our cloud strategy in terms of a relationship
with any one cloud vendor; rather, we are focused on delivering services with
specic cloud-like capabilities, in response to business drivers.”
Steven Flammini, CTO Partners Healthcare
In the 21st century, companies compete as ecosystems which include entities such
as competitors, complementors, infrastructure providers, development platform
providers, and orchestrators. Ideas such as modularity, networks, and design rules
prevail. Every product or service has an informational component to it. Instead of
viewing information technology (IT) simply as a support to the product, IT has
become a part of the product.
The underlying informational technologies have also changed. Instead of building
from scratch, companies focus on reusing what is available internally and externally
to build systems. Instead of negotiating hardware, software, and maintenance issues,
companies pick platforms, develop apps, create APIs, and orchestrate the ecosystem.
Cloud computing enables enterprises to access such IT resources on–demand, while
sharing the provisioning costs and benets of co-innovating with others. Users can
consume basic information processing services like a utility, while leaving the
complex issues of managing hardware and software to specialized vendors.
One of the most interesting aspects of cloud computing is not simply how it helps the
provisioning and consumption of information services, but how it enables companies
to compete effectively. As part of our research on cloud computing, we interviewed
stakeholders from seven companies that have been pioneers in deploying cloud
computing to create business value. A description of our research methods, a list of the
companies interviewed, and the question categories that we utilized for our interviews
with IT executives and other key managers can be found in the Appendix.
Using examples from the companies that we interviewed as well as relevant published
reports, we rst describe the six cloud computing benet patterns that we found.
Then we present ve business-related strategic risks that can be managed using cloud
computing, and the specic cloud capabilities associated with the mitigation of these
MISQE is
Sponsored by
2 MIS Quarterly Executive Vol. 11 No. 1 / Mar 2012 © 2012 University of Minnesota
Iyer and Henderson / Business Value of Clouds
risks. Based on our research, we then provide a set of
recommendations that CIOs should consider as they
seek to create business value from deploying cloud
computing in their own companies.
BENEFIT PATTERNS
We have identied six patterns of benets that
companies achieved from leveraging cloud
computing’s capabilities, each of which facilitates
achieving competitive advantage in the marketplace.
Increased Business Focus
Although IT is a key determinant for competitive
success today, many companies wish for greater
support of their business needs from their IT
departments. Using cloud computing, companies
can keep IT in lock step with their evolving business
requirements.
One of the companies we interviewed was Appirio, a
consulting company that helps others with their cloud
strategy and implementation. Their rapid market
growth created a need to open an ofce in Japan.
As Appirio’s CEO Chris Barbin told us, this was
accomplished in a matter of weeks because all the IT
support needs for this ofce were already being met
by the cloud. Appiro’s cloud strategy permitted its
management to focus on people- and business-related
issues: IT was truly an enabler rather than a friction
point for its growth ambitions.
A similar pattern can be seen when Thomson
Financial merged with Reuters in 2008. Faced with
different systems for managing sales processes,
the merged rm developed a cloud-based strategy,
creating a project named TRUST (Thomson Reuters
Unied Sales Tool) that used the Salesforce.com cloud
to standardize and merge the two sales teams. The
merged rm now has one version of the truth related
to customer data and leads. In addition, it is able to
generate standard reports using the consolidated data
from Salesforce.com, allowing it to create a unied
approach to new and existing client accounts and to
experiment without incurring huge costs.
In the case of the insurance company Aac Inc,
a cloud strategy enabled its sales force to use
applications on personal mobile devices1. Using
mobile applications, sales people can access the
customer database, claims or policy information while
traveling. Formerly, sales associates had to dial into
1 Raice, S. and A. Spencer E. (2010). “Business Tasks Bring Out Serious
Side of Apps.” Wall Street Journal, 2010.
a call center or were tethered to a computer. Cloud
computing helped Aac reduce the number of calls to
call centers, freeing employees to focus on customers
and their insurance claims.
In these three examples, routine IT tasks were
outsourced to the cloud provider, allowing the
companies to focus on the unique value they provide
to their customers. Beyond the benets of traditional
outsourcing, these companies contained their IT cost
outlay by only paying for the IT services they used.
Reusable Infrastructure
For some companies the migration to cloud computing
technology has served as a catalyst to viewing their
IT capabilities as a set of modular services with clear
functionality and well dened interfaces. Modularity
has several competitive benets, including the ability
to innovate faster by reusing existing assets.
For example, Google invested in building its entire
infrastructure as a service available on a cloud.
Therefore, when its engineers in Bangalore wanted
to create Google Finance, they did not have to build
many components: they reused services, such as their
discussion boards and news feeds, while adding stock
market and portfolio management features2. In fact,
Google has extended this approach to all new product
innovations. With its innovation platform in place,
it can simply add new features and test reactions to
emerging ideas, and then make the decision to pursue
or abandon these product concepts.
Infrastructure reuse, combined again with tapping into
knowledge resources from low wage markets, has
been a key driver for companies in the pharmaceutical
industry to use cloud computing to build sophisticated
environments for drug testing. In one global company,
researchers in emerging markets requested a new
laboratory environment for testing new compounds.
Although its standard policy had been for business
units to set up their own environments using services
provided by the local IT marketplace, in this case,
the local market was not sophisticated enough to
support them. Fortunately, based on a request from
another business unit, the company had already built
a cloud-based environment to support drug testing.
Using pre-built interfaces to its corporate clouds, the
local business unit was able to invoke the necessary
environment on its cloud and move along the drug
discovery process for this emerging market location.
2 Iyer, B. and T. Davenport. “Reverse Engineering Google’s
Innovation Engine.” Harvard Business Review (86:4), 2008, pp. 58-68.
© 2012 University of Minnesota MIS Quarterly Executive Vol. 11 No. 1 / Mar 2012 3
Business Value of Clouds: Learning from Users
LiveOps, which offers call center services to clients,
is another company that has invested in a cloud based,
scalable, on-demand technology infrastructure3.
LiveOps acts as a marketplace that brings together
knowledge experts as contractors with companies
needing call center services. With over 20,000
freelancers able to handle calls for multiple clients,
working from home, LiveOps creates many virtual
call centers. New contractors and clients can be
added to the network as it expands. Further, when a
help desk call comes in, the service operates as a
performance-based auction, routing incoming calls to
the best-performing worker available (based on how
well they served prior customer calls). The platform
keeps track of hours worked, billing, call routing,
status updates, and reporting tasks. Once again, a
company-owned sophisticated infrastructure helped
them tap into a lower wage, highly talented labor pool.
Cloud computing technology helped each of these
rms develop a unique business model using an
infrastructure that can be reused to provide services to
internal clients or external customers.
Collective Problem Solving
Most companies have similar requirements for basic
systems such as human resource (HR) management,
sales force automation or supply chain management
needs. Like many large enterprises, Fairchild
Semiconductors used a traditional enterprise software
vendor to provide it with an ERP package to meet
its HR needs. Its IT department bought licenses for
the package, purchased new hardware to install it,
hired a systems integrator to customize the product,
and kept an in-house staff for training, support and
updates or changes. Over time, the company became
increasingly frustrated with the limitations of the
application as well as the high costs and disruption
that an upgrade to the newest version of the package
would entail.
Since Fairchild’s team had good experiences with
other cloud-based applications (such as Google
Apps, SalesForce.com, and Concur), it was open to
a cloud-based HR solution. The CIO recommended
a cloud provider of HR services (Workday), and
after evaluating this option, the company decided to
implement it for all its core HRM needs, including
North American payroll. Since multi-tenant cloud-
based applications are congurable, but do not
accommodate customization, it picked a standard
3 LiveOps. (2011). “LiveOps Talent: Social Savvy Agents: The New
Consumer-Aware Agent Talent”, June 2011, from http://www.liveops.com/why-
liveops/independent-contractor.html.
process conguration based on the vendor’s
demonstration of options from its process library,
choosing those that the vendor had already developed
for other clients. As a result, they enjoy lower costs
by avoiding time-wasting custom building of new
processes for a common function, and learning from
other customers: the system’s current capabilities, as
well as ongoing enhancements, are inuenced by 150
of the vendor’s other customers. As its SVP of HR,
Kevin London, declared:
“Users are willing to give up on customization
when given the choice between that and fast
response to changing customer needs. We are
not arrogant enough to believe that we have
a better succession planning process, for
example, than anyone else.”
Cloud technology allows multiple users to share data
and processes owned by a vendor. The vendors can
choose to allow their partners to modify and enhance
this shared asset, while allowing all users to enjoy the
benets of continuous improvement.
Business Model Experimentation
A cloud-based platform enables customers to develop
their applications on existing platforms. These
applications can reuse many of the functionalities
provided by the platform vendor through well dened
APIs. As they do so, they can create new business
options for themselves.
Apple provides an environment and support
tools that facilitate a user company’s discovery
of new applications to meet their needs. It would
be impossible for Apple to develop all 500,000
applications currently existing on its platform.
Instead, its distribution platform allows third parties
to discover and access these applications. In addition,
other members of the ecosystem--such as Appiro and
BlueWolf--develop and release utilities that allow
applications to work seamlessly with one another.
Among the IT executives that we interviewed, the CIO of
Rehabcare, a leading provider of rehabilitation services
decided to tackle the change management and adoption
challenges of riding the IT consumerization wave. Once the
company’s doctors started adopting iPhones and iPads for
their personal lives, they demanded that their enterprise
applications run on the same devices. In response,
Rehabcare’s CIO developed a new model for application
development and delivery on cloud platforms. One of its
rst applications by an in-house developer was a patient
pre-screening application for the Force.com platform.
The entire development process took only four days, and
4 MIS Quarterly Executive Vol. 11 No. 1 / Mar 2012 © 2012 University of Minnesota
Iyer and Henderson / Business Value of Clouds
the application helped shorten the wait time for patient
screening from 18 hours to less than 60 minutes. Over time,
these types of applications should create a fast response
organization and help improve customer satisfaction.
Orchestrating Dependencies
The ability to orchestrate business partners that jointly
deliver on a value proposition is pivotal to competing
in the era of business networks or ecosystems. When
companies choose to use applications on the cloud,
they have to consider applications from multiple
partners using different vendors. As a result, just
as in the case of traditional software, cloud-based
development creates an ecosystem of dependencies.
For example, Enterasys Networks, a global provider
of hardware, software and services for unied
communications, has assembled its applications to
run on the Salesforce.com cloud. It uses Salesfoce.
com as its core system, Jigsaw for data quality and
GoodData for business analytics. This allows it to
use best-of-breed solutions for its processing needs
while focusing its attention on building customer
relationships. Enterasys discovered many of these
applications on the AppExchange marketplace. The
others were suggested to it by sales people and users.
In cases where products did not interoperate, it wrote
some custom code.
Although Enterasys assembled its own set of
interoperating applications, some cloud vendors have
realized that they have to be a part of a best of breed
interoperable solution to compete with big name
vendors. To that end, The Small Business Web was
founded by a consortium of cloud vendors to create
an ecosystem of interlocking, interoperable software.
It requires members to have a published open API
to access its services, giving customers a set of
applications that can interoperate at a small business
price point.
In addition to software application based
dependencies, customers can create business
related dependencies using the cloud. For example,
customers can form temporary alliances with partners
to share sales force information. Such congurations
are easily created on the Salesforce.com cloud.
In these cases, cloud technology through the use of
APIs enables partners to interoperate on a particular
platform.
Facebook Effect
Facebook has demonstrated how the convergence of
mobile devices, real-time data, and social applications
with the cloud creates interesting possibilities for
companies to design applications with high customer
acceptance. Moreover, companies such as Facebook
and Zynga have shown how adding social elements
to software can increase loyalty to a customer-facing
platform. Our analysis, however, shows that loyalty
requires more than just adding a social layer. That
is, Zynga and Facebook design all their products and
features around the user experience; no product or
feature is added to the portfolio without extensive
user-testing. Both companies are also obsessed with
analytics. Every interaction with the user is archived
and analyzed for trends, which in turn determine
which products get launched and which features are
added or modied. As a result, user-driven content-
generation and behavioral data-gathering is integral to
the business platform.
MANAGING BUSINESS RISKS
USING CLOUD COMPUTING
Organizations expect IT to help them deal with
certain strategic risks they inevitably face when
competing in the marketplace.4 Some organizations
have discovered that both the capabilities of cloud
technologies, and the benets derived from their use,
can help mitigate these risks. In Table 1 we relate the
six business benet patterns described in the prior
section to ve types of business risks.
Below we describe each of the ve business risks.
Demand Risk
Fluctuating demand or market collapse may arise
from changes in economic conditions, customer taste,
or competitive thrusts. Firms must be very exible in
managing such changes to avoid losing market share
to competitors.
Since rapid elasticity is a capability offered by
the cloud, variation in demand for services can
be smoothed out by using cloud based services.
In addition, the pay-per-use model prevents users
from being locked into xed commitments. The
orchestrating dependencies benet pattern helps
rms change their partners when different resources
are needed, as illustrated by LiveOps. When demand
4 Child, J. “Information Technology Organization and the Response
to Strategic Challenges.” California Management Review., (30:1),
1987, pp. 33-50.
© 2012 University of Minnesota MIS Quarterly Executive Vol. 11 No. 1 / Mar 2012 5
Business Value of Clouds: Learning from Users
for a particular type of resource changes (say, from
Excel to SQL experts), customers can switch vendors
to meet this new requirement. The Facebook effect
of designing around the consumer experience and
relentlessly collecting data to support doing so, will
help identify risks very early in the life cycle of an
idea. Similarly, the ability to create business model
experimentation will help appropriate value and assist
in managing demand risk. Orchestrating dependencies
allows companies to choose the best-of-breed
solutions on a pay-as-you-go basis and even shut those
solutions down if the business plan does not work.
Similarly, reusable infrastructure allows companies
to make many incremental improvements to a given
product or service.
Inefciency Risk
Cost structures that are higher than those of
competitors put a company at risk of losing market
share. Using the economics of scale and scope, cloud
vendors help companies drive costs down by allowing
them to outsource their infrastructure or even entire
processes. Since companies can divide the costs across
many users, unit costs for services tend to decrease.
Organizations can then choose vendors offering the
right balance of quality and cost.
As described earlier, Fairchild Semiconductors
switched from an on-premise provider of enterprise
software to a cloud service provider, helping it
simplify and standardize core human resources (HR)
business processes for more than 10,000 employees
and managers globally. As Paul Lones of Fairchild
Semiconductor stated:
“Since Workday opened its platform, we
have already successfully built 28 custom
integrations to and from Workday, gaining
the capability to maintain these or create
additional integrations as our ecosystem
evolves.”
Lones estimates that the cost to implement and run
Workday was about 15% less than buying, installing
and maintaining the traditional ERP software. In
addition, he estimates that implementing a SaaS
solution required about 50% to 70% less time.
According to published reports5 the public sector
has also saved money by moving to cloud based
computing. In 2008, the Washington, D.C., city
government shifted many of its 38,000 employee
email services across 86 agencies to the cloud, saving
48% on email expenditures. In 2009, the city of Los
Angeles moved email service for its 30,000 employees
to the cloud. An analysis by City Administrative found
that the ve-year costs of running the new Google
system would be over $17 million -- 23.6% less than
the costs for operating its former system during that
same period.
Reusable infrastructure, orchestrating dependencies,
and collective problem solving are all benet patterns
that help mitigate this risk. Reusable infrastructure
helps by amortizing a vendor’s xed costs over many
clients. Since initiatives such as the Small Business
Web and marketplaces such as the AppExchange
help identify best-of-breed interoperable applications,
they reduce both search and operating costs. Finally,
sharing business processes helps generate solutions to
most problems efciently.
Innovation Risk
In order to ensure than a company’s rate of innovation
is at least as fast as competitors, the company must
continuously focus on integrating new developments
into its business model.
With Salesforce.com as the cornerstone of its
customer focus strategy, Enterasys has access to the
AppExchange platform, which offers many innovative
5 West, D. Saving Money Through Cloud Computing, 2010,
Washington DC: The Brookings Institution
Table 1. Benet Patterns and the Business Risks They Help Mitigate
Business Risks
Business Benets Demand Inefciency Innovation Scaling Control
Increased business focus √
Reusable infrastructure √√ √ √
Collective problem solving √ √ √
Business model experimentation √ √
Orchestrating dependencies √ √
Facebook effect √
6 MIS Quarterly Executive Vol. 11 No. 1 / Mar 2012 © 2012 University of Minnesota
Iyer and Henderson / Business Value of Clouds
applications developed by Salesforce.com and third
party developers. Enterasys can discover, access,
evaluate, and see reviews by other users on the site.
Sometimes individual users discover and test an
application before they decide to buy. Regardless of
who gets the application, each adopted application is
integrated within Salesforce.com.
In many ways, Enterasys has outsourced innovation to
third-party developers. Prior to using the Salesforce.
com cloud, it either developed innovations in-house or
contracted with independent software vendors. Now
it can tap into indirect network effects created by the
Salesforce.com platform.
Scaling Risk
Businesses typically build excess capacity to ensure
their ability to scale fast or efciently enough to meet
market growth. Since these investments must be made
in anticipation of revenue growth, they can cast a
heavy nancial burden. Excessive outlay of funds for
future returns is highly risky and may threaten the
viability of a rm. When excess capacity is shared
across many users, the cost of building this capacity,
along with the nancial risks, decreases.
Smugmug is a photo sharing company that saw
exponential growth in its usage of storage and
processing. It avoided investment in expensive
infrastructure that would be used in peaks and valleys
by turning to Amazon for its computing needs, using
EC2 for photo and video processing and encoding.
This service can scale up during high trafc times
and, more importantly, be scaled down during low
trafc times such as the middle of the night. Cloud
computing has been able to match its IT needs as its
market has grown, bringing demand for IT services
with it.
Control Risk
Businesses need adequate controls to ensure that
they can maintain needed service levels. The recent
breach of data pertaining to 100 million users of Sony
PlayStation network has put the spotlight on controls
in particular and cloud computing in general.
Cloud vendors excel in managing this risk, as
exemplied by Facebook’s Open Computer Project.
Facebook committed to publishing technical
specications for its new data center in Oregon,
including details of the computers, power supplies,
server racks, battery backup systems and building
design. Ecosystem partners (Intel Corp., Advanced
Micro Devices, Dell Inc. and Hewlett-Packard Co.)
have agreed to ship products to other customers based
on the standards developed for the Open Computer
Project.
Another example of managing control risk is the
arrival of the OpenStack cloud operating system.
Rackspace, Dell, Equinix, NASA, Intel, AMD,
Microsoft and Citrix have committed to supporting
this standard. Companies using this standard for
provisioning their cloud services will not incur
licensing costs and will be able to interoperate across
Openstack implementations.
RELATING CLOUD COMPUTING
CAPABILITIES TO THE BUSINESS
RISKS
In the rst phase of our SIM-sponsored research, we
identied seven capabilities of cloud computing that
can be leveraged to achieve business value.6 These
capabilities are summarized below.
Controlled Interface. This capability creates an
infrastructure that is organic and responsive to
changing user requirements. As companies develop
and deploy application services, each service can
be used by other services using an interface called
Application Program Interface (API).
Location Independence. This capability controls
access to services and information assets from
anywhere within an enterprise without needing to
know their location.
Sourcing Independence. This capability enables a
company to control access to services and to switch
service providers easily and inexpensively.
Virtual Business Environment. A virtual business
environment (VBE) is a suite of integrated
applications (processes) and tools that support
specic, major business capabilities or needs. With
cloud computing, this capability provides decision
makers with integrated and seamless access to all the
capabilities needed to analyze and execute business
decisions.
Ubiquitous Access. This capability reects users’
ability to access any company service from any
platform or device via a web browser.
6 Iyer, B., & Henderson, J. “Preparing for the Future: Understanding
the Seven Capabilities of Cloud Computing.” MIS Quarterly Executive,
(9:2), 2010, pp. 37-51.
© 2012 University of Minnesota MIS Quarterly Executive Vol. 11 No. 1 / Mar 2012 7
Business Value of Clouds: Learning from Users
Addressability and Traceability. This capability
enables users and the usage of every information
service within an organization to be tracked.
Rapid Elasticity. This provides a self-service
capability for rapidly scaling up or down service usage
transparently and automatically.
In Table 2 we summarize which cloud computing
capabilities help mitigate which of the ve types of
business risks we described in the prior section.
RECOMMENDATIONS FOR CIOS
Based on our research, we recommend that CIOs
consider launching the following initiatives as part of
their efforts to develop their cloud strategy.
Initiate Strategic, Fast Experiments
In order to deal with innovation risks and bridge the
gap between external IT innovations and internal
capabilities, we recommend that organizations
perform strategic, fast experiments. Merck Research
Laboratories, for instance, has created an innovation
group just to conduct such fast experiments7.
The rst step is to identify new technologies worthy
of further consideration. Leveraging the wisdom
of crowds, employees could be asked to identify
and propose emerging technologies to consider, as
illustrated by the mystarbucks.com site, which allows
people to suggest ideas and then vote on the concepts
proposed. The innovation team, in turn, can deliberate
upon those with the most votes, identifying promising
IT innovations and matching them with internal
business needs. Matching innovations with needs
7 Ray, S. “Enabling pharmaceutical Research & Development.” ,
2011, Retrieved June 2011, from http://www.pharmafocusasia.com/
information_technology/innovative_it_enabling_pharmaceutical_randd.
htm.
prevents wasted time and effort on new technologies
that may be interesting but prove inessential to the
organization’s goals. The team can then orchestrate
opportunities to apply promising new technologies to
business challenges through short, agile experiments.
These experiments are run using the scientic
approach. First, the team identies a business group
to sponsor the experiment. Then they develop a
hypothesis, framed as an explanation of a business
challenge. What follows is a prediction of the
new technology’s impact on the business scenario
described in the hypothesis. The next step is to design
and execute an experiment to test this prediction
(which may involve developing a prototype).
Once the project is complete, an objective assessment
of the innovative and novel technology is made.
Although the sponsoring group can’t use the prototype
for a “real” application, business units participate to
learn and plan their future business strategy on the
basis of experimentally veried capabilities of new IT.
In addition, by adding the experiment and its results to
a corporate knowledge management system, adequate
knowledge capture and dissemination can be ensured.
The term “fast experiments” applies because, as a
policy, these scenarios are limited to three months
at most — achievable because experiments such
as these neither follow the typical long lead time
procurement process nor are conned by the standard
process. Moreover, anything built is not made to last.
Since prototypes are decommissioned soon after the
experiment, ongoing support and maintenance costs
are avoided.
Although the experiments are fast-cycle based, the
lessons learned can be long-lasting. First, companies
can determine if a real business need exists for that
technology. Once they present the results to internal
stakeholders, they can see if the technology garners
Table 2. How Cloud Computing Capabilities Can Mitigate Business Risks
Business Risks
Cloud Computing Capabilities Demand Inefciency Innovation Scaling Control
Controlled Interface √ √
Location independence √
Sourcing independence √ √
Virtual business environment √ √
Ubiquitous access √ √ √
Addressability and traceability √ √ √
Rapid elasticity √ √
8 MIS Quarterly Executive Vol. 11 No. 1 / Mar 2012 © 2012 University of Minnesota
Iyer and Henderson / Business Value of Clouds
interest. If it does, they next assess what investments
they need to make in people, process and technology
to be able to build it out as a capability.
Establish a Cloud Community Strategy
Since much of the work achieved in the world
of clouds occurs with the help of user-driven
communities, learning how to navigate and participate
in these communities will help minimize demand
and inefciency risk. Take a look at Amazon’s
web services community. Users pose questions and
answer them on Amazon’s discussion boards. In
some cases, experts from within Amazon respond.
Users can also make requests of Amazon to provide a
service or explain how something works. Community
members can build their expertise and credibility
by participating in these conversations. Based on
their answers to questions, users can earn points and
build status and reputation on these sites. Since these
communities are open on Amazon’s website, users can
familiarize themselves with it before they choose to
participate.
Since Amazon does not have a large help desk or
call center to respond to user queries, this type of
community remains the only source for solutions
to many problems with Amazon’s services. Similar
communities exist for Google, Salesforce.com, and
other cloud platform providers. Learning how to
participate and navigate within these communities is a
critical skill-set to develop.
Employees should also be encouraged rst to observe
and then participate in these external communities.
In addition, companies should create internal
communities for people to learn, interact, and share
ideas.
Pay Attention to IT Architectural
Capability
As companies implement cloud-based capabilities,
they typically end up with a mix of traditional and
cloud solutions. Moreover, many of the traditional
applications continue to have interoperability
problems that reduce business efciency and
scalability. In response, organizations should develop
an IT architectural capability to access information
and products from both within and outside the
organization’s boundaries, and to integrate them
exibly across disciplines and boundaries within the
organization.
The management of APIs is also important. Just
as organizations create governance mechanisms to
approve applications within organizations, they need a
group that decides on APIs to provide and the access
rights and privileges of different stakeholders.
Embrace the Role of a Business
Architect
Prior to the development of cloud computing, CIOs
had to build systems and control change management
within their corporate rewalls. Now CIOs must
create an infrastructure that allows employees
to be entrepreneurial and innovative using IT.
Today’s challenges involve juggling the complex
set of dependencies that arise between entities in the
ecosystem. If not properly managed, this complexity
could lead to the enterprise’s inability to appropriate
value from the ecosystem. We call this new challenge
“business architecture.”
The business architectural perspective goes beyond
merely seeing the process as the focus of design to
addressing the emerging competitive reality of using
business networks to create new business models. We
dene business architecture as the set of design rules,
policies, and key decisions that position the rm in a
business network to maximize its current and future
information assets. The role of the business architect
is to collaborate with the leaders of the rm to achieve
its business network strategy.
Consider the Economics of Networks
Business strategists must understand market pressures
and invest in new capabilities. This economic
perspective must be incorporated into the development
of business architecture.
For example, consider the CIO who is part of a team
dening a mobile payment system strategy for a bank.
Taking a business architect perspective, she identies
and sketches out the current ecosystems that provide
mobile payment services. She identies operators,
payment network providers, technology providers,
software vendors, merchants and other complementors
who are part of each competing ecosystem.
This analysis unearths the Google Wallet ecosystem
championed by Google and ISIS (www.paywithisis.
com) championed by AT&T, T-Mobile and Verizon.
The CIO then studies these networks to help the
bank create a competitive position and notices that
the major payment networks like Visa and Discover
form the cornerstones for both these ecosystems.
© 2012 University of Minnesota MIS Quarterly Executive Vol. 11 No. 1 / Mar 2012 9
Business Value of Clouds: Learning from Users
In addition, merchants may not attach themselves
exclusively to any ecosystem. As a result, the CIO
advises the bank to simply join the network based on
its network effects (how many merchants joined them)
and the level of standardization of their APIs.
Value appropriation requires the rm to manage
their architectural control points. Increasingly, the
architectural control point lies not in the management
of physical resources or geographical location, but
rather in the command of information assets, standards
and intellectual property rights. These complex issues
must be translated into business architecture. In
essence the business architecture must design the 21st
century cash register within the fabric of the business
network solution.
Returning to the example of the bank considering
a mobile payment system, the CIO realizes that the
ultimate goal is to deliver high customer satisfaction
and retention, which depends on the ecosystem’s
performance. As a result, she recommends that the
bank interact with every partner in the business
network through clearly dened and well governed
APIs. In addition, the bank will also monitor the end-
to-end performance of a transaction. If the quality
of service delivered by a particular ecosystem to the
customer is inadequate, the bank could switch to a
different ecosystem. In addition, the bank could set
and monitor performance goals for each partner,
settling payments accordingly.
CONCLUSION
In conclusion, we argue that CIOs treat cloud
computing as a major strategic imperative that
requires careful examination prior to major action.
Before entering the cloud space, we recommend
reviewing carefully the company’s strategic goals
as well as the set of recommendations that we have
provided. However, developing and consuming
applications on the cloud is not without IT risks. As
the CEO of Appirio has cautioned, “All it takes is one
major incident of losing condential information on
the cloud for adoption rates to slow down.” Current
legislation related to data transfer across geographical
boundaries also creates impediments. In the case
of the EU, current privacy laws place rigid limits
on the free ow of personal information beyond
the jurisdiction of users. Similarly, in the nancial
services industry, audit requirements mandate that
companies know where their information resides when
it is transmitted, impeding cloud adoption. Ultimately,
assessing these opportunities and constraints leads
to a nal question: As competitors explore and
implement cloud and other network strategies to build
efciency and agility, can you afford to wait for every
uncertainty to be fully resolved? We doubt it.
APPENDIX: METHODOLOGY
We began our research, sponsored by the APC of
SIM, with an ecosystem analysis, which we published
earlier as a SIM-sponsored report in this journal (see
the June 2010 issue of MISQ Executive). We then
interviewed senior executives in the key service
companies within the cloud ecosystem to identify
a list of companies that were using cloud computing
in innovative ways , and were given the contact
information for the IT executives in these companies.
For this report, in-depth interviews were conducted
with the CIOs in the following companies: Rehabcare,
Enterasys Networks, Fairchild Semiconductors,
Appirio, Partners Healthcare, and a large bank. We
also asked to speak with an architect and a business
user in these companies. In addition to the extended
conversations with the sponsors identied above, we
also had conversations with representatives from
Thomson Reuters and Salesforce.com.
We developed an interview script with questions
for each stakeholder. The questions were divided
into seven topics to capture the following type of
information.
Context: the role played by the stakeholder,
description of the cloud project, project sponsorship
information and the criteria used to select them.
Service organization: its evolution, challenges
in managing them and the process used for API
maintenance.
Design process: methodology and artifacts used for
the cloud project.
Value proposition: how the company benetted from
using the cloud.
Approach: methodology and artifacts used for project
roll-out and training.
Extended enterprise: how the cloud helped companies
connect with their suppliers and other business
collaborators.
Lessons learned: key takeaways and critical success
factors.
10 MIS Quarterly Executive Vol. 11 No. 1 / Mar 2012 © 2012 University of Minnesota
Iyer and Henderson / Business Value of Clouds
Each interview lasted for an hour. In many instances,
we had to conduct more than one call with each
stakeholder. Each interview was recorded with
the permission of the interviewer and transcribed.
We circulated the written documents back to
the interviewees and received their approvals. A
presentation based on the approved notes was made
to the SIM-APC members during their Atlanta
meeting in 2011. Feedback obtained during these
interactions helped us identify questions for follow-on
conversations with companies.
ABOUT THE AUTHORS
Bala Iyer
Bala Iyer (biyer@babson.edu) is an associate
professor in the Technology, Operations, and
Information Management Division at Babson College.
He also holds the William D. Bygrave Term Chair
in Technology. Professor Iyer received his Ph.D.
from New York University with a minor in computer
science. His research interests include exploring
the role of IT architectures in delivering business
capabilities, designing knowledge management
systems and studying the impact of technology
mediated networks. Recently, he has started exploring
ways to build a professional reputation in the digital
world. His work has been published in MIS Quarterly,
Strategic Management Journal, Harvard Business
Review and the California Management Review.
John C. Henderson
John C. Henderson (jchender@bu.edu) is a Professor
of Management at Boston University’s School
of Management and serves as the Director of the
School’s Institute for Global Work. He received his
Ph.D. from the University of Texas at Austin. His
research has been published in many journals and he
is the co-author of The Knowledge Engine. His co-
authored paper with N. Venkatraman on Strategic
Alignment of Business and I/T Strategies was
selected by the IBM Systems Journal as a “turning
point” article, one of the most inuential papers on
Information Technology strategy published by the
Journal since 1962.
