The adoption of cloud is changing the way enterprises compete, allowing smaller enterprises to outmaneuver their larger peers. But the right execution will be key to their success.
As advisors and analysts, we look for changes in the business landscape that have the potential to shift the relative positioning of industry players. For us, these represent opportunities for disproportionately advantageous returns. Cloud technologies for smaller enterprises represent one such game-changing disruption.
A main reason for this is access. Over the last four decades the proliferation of costly and complex on-premises business software made access to industry-leading technology prohibitive for smaller enterprises. Today cloud has the promise to bridge this divide. With a pay-as-you-use business model and shared access to infrastructure rivaling that of the largest of enterprises, coupled with a more efficient use of IT talent, cloud dramatically levels the playing field.
However, based on our observations of cloud initiatives at smaller enterprises, adoption for these businesses will require a unique approach to IT. Below are some of the key facets that successful cloud migration strategies share that can be used as a guideline for smaller companies planning their adoption of cloud.
Rethinking the IT organization at the ground level
IT management in midsized organizations was historically focused on midmarket-focused software. However, moving to the cloud requires companies to manage the same technology spectrum available to larger enterprises. With this expansion in choice, IT teams must, in addition to being built out to manage and integrate a cloud-based environment, be retooled to include more specific business domain expertise, as cloud solutions become more domain- and business function-centric.
For example, a company selecting and implementing a cloud solution Customer Relationship Management (CRM) process must look at business metrics and intended impact. If the business’ IT leaders do not know what business metrics to use and how they might translate to business impact, the selection and implementation will necessarily be suboptimal. An investment in cloud capabilities should go hand in hand with an investment of cross-functional resources to manage this new paradigm.
Until recently, small enterprises have had to plan their business strategies and processes within the constraints of limited technology options available to them. They would do well to revisit their overall business strategy and make technology choices by the business impact they can create, as the cloud offers the ability to expand the vision and ambition of their strategies and processes. Key areas to revisit include:
- Competitive landscape. Cloud opens up new opportunities such as new client segments or scope of services, but along with these come increased competition in core markets from big and small enterprises alike.
- Customer requirements. As the scope of services increases for businesses, so do customer demands. The value proposition should be aligned to that of a larger enterprise. For example, for financial institutions, multichannel access to services will become a base expectation. Similarly, a smaller retailer will also have to integrate in-store and online experiences at a minimum.
- Business processes. The way enterprises run their business processes will need to be redesigned, honing in on a core value-creating process that differentiates them from the market while leveraging standard processes and outsourcing partners for the remainder.
Given the potential impact on business scope and client demands, moving to cloud requires a substantial shift in business strategy and technology management. This involves all internal stakeholders, and we’ve seen that execution can be exceedingly complicated, requiring a change in business-as-usual organizational and IT mindset.
The approach to successful execution will have to be driven at a much more strategic level than a typical IT initiative. In addition to the obvious buy-in from business heads and IT, these initiatives need to involve functional groups such as HR and marketing as cloud migration will require significant changes in softer business aspects such as market positioning and organizational behavior. Some of the best practices that can ensure smoother transition include:
- A comprehensive communications plan. Clearly communicated top-level commitment is necessary as there will be a number of transitional hurdles. Unless the senior leadership sends an unambiguous message that adoption is not optional, the transition can be snared with reluctant participants, as transitioning to cloud requires changes in usual business practices and new skillsets.
- Plan for business changes. As the most important impact of cloud is on business and not IT, it is paramount that the execution planning starts with business changes and goals in mind to keep nimble – for example, for retailers, expanding the supplier network to meet increased demand. Ensuring buy-in from business leaders and ownership of the business impact is critical in realizing the full benefits from cloud migration.
- Have a long-term vision. The long-term IT strategy and plan needs to be put in place as cloud migration will be a multistage journey rather than a one-time event. If the business, for example, is planning to expand into a new vertical/market, that necessarily affects the migration sequence and tech choices.
Cloud migration is not easy and is fraught with the complications of major changes to business culture and processes. However, the benefits for small enterprises can be well worth the effort.
Some key benefits we see are:
- Ability to address markets/customers which were, until now, available only to large enterprises due to scale and IT investment requirements
- Enhanced capital efficiency, as advanced investment in IT and business processes are not required due to the pay-as-you-go model enabled by cloud technologies
- Increased flexibility and agility to modify and enhance services quickly and cost-effectively
- Increased business scope, as businesses can focus on core differentiation-creating processes and leverage efficient providers for non-differentiated processes. This not only allows for better allocation of financial resources but, more importantly, reduces the blocking-and-tackling issues that face smaller enterprises setting up routine processes
In summary, cloud has tremendous potential to transform the competitive positioning of smaller enterprises if they can navigate the transition effectively. For investors seeking to deploy capital, companies that are able to manage this transition to the cloud are in an attractive market position.
Jeff Baker is a vice president at Avendus Capital with a focus on technology and technology-enabled services businesses. He has over 10 years of investment banking experience and joined the firm in 2011.
Ned May is senior vice-president of HfS Research. His remit is to develop cutting-edge research focused on the business impact of emerging technologies across the full spectrum of IT services.
Puneet Shivam is U.S. head and co-head of the outsourcing vertical at Avendus Capital. He has more than 17 years of experience in financial services and consulting.