Amazon’s cloud services business (as part of Amazon Web Services – AWS) has been a great success and shows no sign of retreating. Amazon’s cloud computing business did exceptionally well in the fourth quarter of 2015, generating $687 million in profit on sales of $2.4 billion. That is a business on track to generate $10 billion in annual revenue and a margin of over 28%! That is in a business that is a “commodity service.” Even with Microsoft and Google in the fray, this success has broad implications for cloud services and the future role of IT executives in firms.
Clearly, Amazon’s cloud service offering is hitting a cord with firms. It began by attracting small firms, not-for-profits, and now boasts clients like Netflix, Yelp, and soon Fortune 500 firms. Microsoft, Google, and Amazon, each with their own cloud service are setting their sights on serving the Fortune 500, and replacing the data centers of the largest firms in the world. The future of data centers is becoming clear. Firms are getting out of the IT business but are more and more in the digital business. Amazon, Microsoft, or Google will run the data center, provide architectural guidance, address security, and provide the redundancy that have long been the focal points of CIOs and IT executives. Of course, costs are an issue and Amazon and its competitors have established a system that achieves an economy of scale that few firms if any could match. Initially concerns of data breaches and security cast a dark cloud over cloud services. However, are private clouds or any corporate data center significantly more secure? Probably not. By its record, cloud services are proving to be a solution for many firms.
Next Steps for IT Executives
As firms reduce their role in running data centers, they are simultaneously increasing their digital footprints and producing more data. There are enormous opportunities for IT executives, but it does require a pivot and a repositioning of the work that is in house for firms.
Here are a few areas are will be especially important for firms and are rich areas for IT executives to consider as their next moves.
- Develop a Digital Strategy: Many firms are in the nascent phases of their digital strategy. Mobile presence, sensors, IoT, and automation are all on the immediate horizon. These areas will be immensely important to firms and IT executives are uniquely positioned to formulate the digital strategy of firms. They understand the technology and what is possible. This requires becoming a bridge in the firm. Be that person that can work with marketing and finance to craft a digital strategy, but also identify technology uses and limitations that are impactful to the firm. How will your firm use sensors? Automation? What is the latest in mobile app development? How can your firms invest in these areas? Few marketers or finance people have a handle on the technology and fewer understand how to tie the technologies together. Indeed, many firms are moving to have a Chief Digital Officer, a person that oversees these digital investments and strategies. It is most likely that the Chief Digital Officer will have a strong IT background, but most certainly will need to work effectively with marketing and finance.
- Invest in Data Science, Analytics, and Big Data: Even as firms move data processing outside the firm walls, the processing of data and the teams that run analytics are growing in size. The data is growing in size and firms are expecting to do more with that big data. Moving into the data science and analytics space gets closer to the business decisions and moves into a position that adds greater value to the enterprise. For many people working in IT, adding skills in data science and analytics would be an excellent compliment to their strong coding and data architectural knowledge. Today, many data science and analytics programs are available to working professionals. McKinsey reported that the world will see a dearth of some 200,000 data scientist in the coming decade. It is not only a convenient move, but also one the leverages IT skills in a powerful way.
- Advance the Cloud: For some firms, moving to cloud computing will take a while. However, as first movers in an industry adopt cloud computing and experience cost savings, it will drive others in the industry to do the same, simply to be cost effective. Examine current cloud offerings in your industry. Why is cloud not adopted, yet? Develop and run pilot studies to see how your firm can adopt cloud services. The savings and benefits are becoming clearer. At some point, boards of directors will expect firms to operate at lower IT costs and this will require cloud services. Be the champion for that.
- Focus on Critical Processes: For every firm, there are critical processes. In a bank or insurer, it is the interaction with the customer. That has become nearly entirely digital. For a manufacturer, it is critical steps in the treatment of raw materials and decisions to order supplies and produce final products. For a hospital, it is decisions of care and even pricing. Many industries have already adopted digital solutions to enable such processes, but there are still many opportunities without digital solutions. The greatest savings to a firm in terms of its digital success will be how it can map its most important processes to a digital solution. Be the person that leads that. Understand the process. Go to the factory, go to the call center, go to the hospital; learn the process inside and out. Next, learn how to digitize that process What is preventing digital adoption, today? What needs to be done to make digital successful in your critical processes? Be a champion for bringing digital solutions to the critical processes in your firm.
- Study Disruptors Closely: I was recently at a Techonomy conference in which a panel of industry leaders discussed the approach of disruptors. In particular, we discussed disruption in financial services. Banks and insurers have large departments, and especially large IT teams. A disruptor in financial services will not have such large IT teams. They will leverage a digital solution to take costs out of critical processes. They will use cloud services and mobile apps. It will be nimble and efficient. Maybe, if will be incomplete in some way, but it will not begin by building the IT fortress that banks and insurers have become, instead, disruptors will use and reuse existing technology. Study these disruptors. What is working? What is not? What is risky? What can your firm adapt? Be the leader with the answers to those questions.
About Russell Walker, Ph.D.
Professor Russell Walker helps companies develop strategies to manage risk and harness value through analytics and Big Data. He is Clinical Associate Professor of Managerial Economics and Decision Sciences at the Kellogg School of Management of Northwestern University. He has worked with many professional sports teams and leading marketing organizations through the Analytical Consulting Lab, an experiential class that he founded and leads at Kellogg.
His most recent and award-winning book, From Big Data to Big Profits: Success with Data and Analytics is published by Oxford University Press (2015), which explores how firms can best monetize Big Data through digital strategies. He is the author of the text Winning with Risk Management (World Scientific Publishing, 2013), which examines the principles and practice of risk management through business case studies.
You can find him at @RussWalker1492 and russellwalkerphd.com
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