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Succeeding in the Cloud Services Business

Technology companies need dramatic changes in strategies, operations and governance

While consumers and enterprises hail "the cloud" for its ability to provide flexible, low-cost and easily accessible computing power, traditional hardware and software providers tend to see the innovation somewhat differently. For these companies the cloud is a disruption of the highest order that threatens their competitiveness and in some cases their survival. As such, these companies must make dramatic changes in their strategies, operating models and governance approaches to succeed in this fast-growing cloud computing market.

With the cloud supporting an ever-expanding collection of "anything-as-a-service," or XaaS, solutions, established hardware and software companies recognize they face one especially vexing challenge: figuring out how to develop appropriate operating models to capitalize on customer demands for cloud-based XaaS solutions while continuing to support traditional product-focused businesses that form their core offerings.

This is not a simple task, as recent research confirms. The research, summarized in a new report, Where the Cloud Meets Reality: Scaling to Succeed in New Business Models, included interviews with more than 40 senior executives from 30 companies that operate or are building Software-as-a-Service, Platform-as-a-Service or Infrastructure-as-a-Service cloud-based businesses. The research goal was to develop deeper insights to help companies create approaches to successfully scale and operationalize these new cloud business models.

Executives interviewed emphasized how hard it is to understand the complexity that comes with providing a service versus a hardware "box" or software license, and then to adjust capabilities to enable these "as-a-service" offerings. As one business unit executive for a XaaS provider said, "This is a massive shift in how we manage and deploy resources. If companies aren't thinking about this, they should be. But the question becomes: Is the business model moving to something that you have in your DNA to change?"

The research confirmed that virtually all companies are struggling to deal with operational complexity caused by XaaS, and by new business models more broadly. The reality is that building the new XaaS capabilities required to succeed, and embracing a services-centric mentality, requires hard work that touches virtually every corporate function. In most cases, the launch of new XaaS businesses far outpaces a company's operational ability to deliver and scale, the research found. This can have disastrous consequences. "We are going 100 miles per hour and the cliff is 10 miles away," explained the general manager of a cloud business. "We go ‘kaboom' in just a few quarters unless we get our operations functioning quickly."

The good news, however, is the research confirmed that lessons can be learned from companies succeeding and struggling to make the move to new XaaS business models. We have distilled these lessons into four major principles:

One: Success starts with achieving business model clarity before making any investments in XaaS. As companies plan to add business models to their portfolios, they must articulate and clearly think through capability requirements of each one as a requisite input into their operating model strategies. This exercise includes agreeing on which and how many business models the company has today; identifying what new business models it likely will add in the future; and defining key elements of each of the new business models such as target customers, value propositions, routes to market and revenue models.

Two: Once a company gains clarity on business models, it then should identify and build distinctive XaaS capabilities and incorporate them into a cohesive operating model. In doing so, the company should be sure to anchor those capabilities around the customer experience the firm wants to deliver with each business model. Special attention should be paid in two areas: first, the five processes our research found are especially critical to enabling cloud-based businesses (product development; customer-centric technology delivery; selling and channel management; pricing, contracting and billing; and financial management); and second, the three processes that companies typically overlook (portfolio management, ecosystem management, and customer service and support).

Three: To manage the increasing complexity generated by additional business models, a company also needs to identify the operating model approach that strikes the right balance between costs and capabilities. The research found that it's appropriate for most companies to use a segmented approach in which the company standardizes on two to three operating models to support all business models. Having chosen an operating model approach, the company can begin the challenging work of fleshing out details of each operating model.

Four: Each company should address the critical issue of how it makes the governance decisions necessary to operationalize a cloud-based business model. Making complex decisions that impact multiple business units is not simple particularly when many nuances of managing traditional and newer XaaS models simultaneously remain undetermined. For many technology companies the chief operating officer should take on this role personally. If unable to spend the time needed on these strategic decisions, companies need to create a new senior-level position for someone to do so. This executive should be responsible for setting operating model strategy for new XaaS models and leading the firm's decision-making about the customer experience and internal management key to a successful migration to cloud business initiatives.

Collectively, embracing these four principles requires a major shift in how most high-tech companies currently operate. But continuing on the current path is not an option. Customers are deciding with greater frequency that XaaS solutions can meet their needs better than traditional models. Growth is king in the technology arena. Every percentage point of growth a company fails to capture typically results in a measureable loss of shareholder value. The future calls for focused attention to these challenges today, while cash is available to fund investments and create new capabilities required to compete in the anything-as-a-service age.

More Stories By Tim Jellison

Tim Jellison is a Senior Executive in Accenture’s Communications, Media, and Technology management consulting practice, focusing on software and other high tech clients. He has more than 20 years of consulting experience, advising clients on new products and services, operational processes, and organizational change. Tim is also Accenture’s global software industry sector lead. He is based in San Francisco.

More Stories By Dave Sovie

Dave Sovie is a Senior Executive in Accenture’s Communications, Media, and Technology management consulting practice, focusing on high-tech clients in Silicon Valley. His expertise includes large-scale transformation, business model and product innovation, and growth strategy. Dave has worked with many high tech industry leaders in enterprise computing, software, IT services, and solutions during the past 20 years

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