The Innovation Dilemma: DIY or Ride the Cloud Coattails

The digital revolution that is transforming every aspect of our lives — work, learn, live or play — is being driven by the accelerating pace of innovation.

Digitization — AKA digital disruption, digital transformation (DT), DX, Digital Cohesion or Industry 4.0 — is changing everything, and while tools like cloud, mobility, Internet of Things (IoT) and analytics are powering that transformation, it is innovation that will determine the winners and losers.

One of the many questions that must be answered by every organization is: Should innovation be entirely homegrown, i.e. do-it-yourself, or can some of it be outsourced to the public cloud?

Over the last four years, the effective start of the cloud market — “a place to turn ideas into software faster,” — widespread adoption has jumped from 10% of global companies to 33% this year, and it is expected to increase to 49% in 2017. Worldwide spending on public cloud services will exceed $195 billion in 2020, more than double 2016’s $96.5 billion, and represent a compound annual growth rate (CAGR) of 20.4% over the 2015-2020 forecast period.

The importance of “innovation” spending has shot up as an IT category in recent years, from the eighth most important management concern in 2014, to fourth in 2015 to third this year. Cloud services account for just over 12% of an IT department’s spending, and that’s due to grow to 15% next year.

But how can cloud help fuel innovation? In simplistic terms a business can be divided into two components — run the business, and grow the business — and cloud can play a critical role in both aspects.

Leveraging the cloud provides both business innovation and growth benefits, according to a recent study, in addition to savings in capital expenditures and staffing:

• A pay-as-you-go model allows organizations to avoid high fixed costs, and to be more aggressive in their growth strategies;
• IT staff can hand off maintenance activities, up to 80% of their workloads, and focus on innovation;
• More flexibility to expand into new markets or diversify revenue streams through M&A;
• R&D staff can accelerate new product development with spinning up cloud resources on demand;
• Faster data analytics response to real-time business needs; and,
• Because cloud is a “mobile-first” service, it lets applications run anywhere.

Embracing digitization — and cloud — can pay huge dividends in terms of speed to market, customer satisfaction and new business revenue. According to a recent survey, companies that embrace cloud are able to expand into new industries (76%), create new revenue sources (71%) and create new business models (69%).

Companies can expect to increase annual revenues by an average of 2.9% and reduce costs by an average of 3.6%, but ‘first movers’ who combine high investment levels with advanced digitization, are “already gaining a nearly insurmountable advantage over competitors”: both revenue gains of more than 30% and cost reduction of more than 30% at the same time.

Digitization and innovation are team sports. IT must be much more collaborative across the business and organized in such a way to interact deeply with business process owners across the enterprise. This is both a cultural and organizational challenge, but cloud is playing a growing role in enabling these changes, while fueling innovation.