Businesses in the cloud

There is probably nothing more important in any venture than a vision of what is possible and what the future might hold. This holds true in business as well, particularly in technology companies who are seeking to stay relevant in a world where the cloud continues to change the game. The lack of a clear vision that is easy to grasp and which resonates with people on the ground is why many lumbering IT corporates (and even some smaller ones) find it difficult to innovate and develop next generation business models necessary for moving into the cloud.

Clouds

So why is this important? IT companies are currently faced with the imperative to transform their business models into cloud based technologies and platforms in order to benefit from improved cost structures, access to new technologies and to meet new client demands. Yet when I look at what many local IT Service companies are actually achieving in this regard I wonder how much longer they will actually be in business. At what stage, given the relentless competition from international cloud based providers will smaller local IT service companies be forced to do the only thing possible – to consolidate with each other in order to try drive costs down and to try and stay relevant to their customers through sheer scale? Even the most progressive software companies in practice seem to find it hard to shift their model from traditional on-premise licensing to a subscription based cloud service.

Technology companies who lack a track record of recent innovation and who need to make the step change to the cloud might be limited to acquiring other businesses in order to gain access to new ideas. “Cloud entrepreneurs” in a different environment altogether have been creative, taken risk and incubated a business concept from the ground up. If a larger company can pick the moment well it can acquire all the capabilities and experience of a new business model through acquisition. But the reality is if you acquire a business too early you will stifle its growth by adding the overheads (financial, governance and emotional) and then expecting the same financial returns, and if you acquire too late you end up with the headache of a business that is dangerously close to legacy in its products and which itself needs to be reinvented, thereby perpetuating the challenge. Even if you are successful in acquiring a new company at the right moment, integration of the business model without damaging its “secret sauce” is no trivial exercise. I have not seen this done particularly well anywhere.

What seems worse, most local companies embarking on the journey to the cloud seem to be dissecting their existing business and putting bits in the cloud. They do this without fundamentally understanding what the next generation computer user requires, and without redesigning the user experience to suit. In practice we see tentative steps towards virtualisation, and hosting of business apps, even changing licensing agreements to a “leasing” or “rental” model and proudly calling it “SAAS”. Far less prevalent in companies is a radical re-look at the end user experience. It is actually not hard to get an idea what this experience might be, just start subscribing to a few consumer oriented commercial services on the web today and extrapolate that to your business environment in a few years. Most established IT companies seem oblivious about what the next generation end user will expect from their technology platforms. From what I observe a radically new expectation of the role of technology is developing in users and this will drive what a successful cloud business looks like in future. If you don’t meet this expectation head on a competitor will, and you might eventually be forced to shut down shop. To repeat, simply transporting an existing business model onto someone else’s servers is really not enough, and if this is all you are doing and you are an IT solutions company then you probably need to honestly admit that you probably lack the innovation that will be required to keep you in business.

I am currently experiencing what it takes to conceptualise a new cloud based business plan from the ground up. It is the most exciting project I have been involved in in many years! But it required a radical move out of an established company mindset. You cannot be peddling flat out chasing quarterly numbers while at the same time looking to change bicycles onto a new business model! You need to stop, get off the speeding bicycle and get your child’s tricycle out and start again.

If an established company can make radical structural changes to their business (for example create a business incubation division funded with different criteria from the mainstream business) you might win at the end of the day. But then you also need to remember that entrepreneurs are strongly driven by their own goals and the desire to see any personal risks converted to big returns in the long term. In other words a company is unlikely to be able to simply buy themselves necessary entrepreneurial skill without simultaneously promising a big part of the outcome to those individuals who become the “founders” of the new idea.

This past month has been a delight for me. Sabbatical is great fun if you can apply your ideas meaningfully to something that might grow into a successful enterprise in future. The best part is that I am busy working with some of the smartest most creative free thinking minds I know to jointly develop new concepts. This is the true environment in which innovation can take hold. It is the world of entrepreneurship, start ups, small business and I would not forfeit this experience for anything!

If you have any thoughts about innovation in established companies then please let me have your ideas, I am looking forward to hearing from you!