Commodity to Intelligence - the Next Step in the Cloud Journey

Suketu Gandhi, Partner, A.T. Kearney
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Suketu Gandhi, Partner, A.T. Kearney

Over the past few years, the cloud has moved from making transactions easier, to making connections to people and communities easier, to making connections to intelligence easier. In doing so, it has gone from being a mechanism for sharing infrastructure and then sharing transactions to what it is today: primarily a mechanism for sharing intelligence.

The idea of the cloud as an intelligence-sharing mechanism has gained strength because the concept of external intelligence is fast gathering steam. This concept—that valuable, accessible intelligence exists beyond the enterprise’s four walls—is already being put into action in many areas. Companies everywhere, for example, are using cloud-based intelligence to secure their systems and protect them from attack, and the military is using massive intelligence databases in the cloud to better understand our enemies’ characteristics, attributes, and potential actions. Likewise, more enterprises are taking advantage of cloud-based shared intelligence for practical applications. One company, for example, has put the menus of nearly all U.S. restaurants in the cloud and makes available to its clients trend information that can help them stay up with, and perhaps get in front of, the changing eating habits of Americans.

The acceptance of the cloud as a mechanism for sharing intelligence is forcing a fundamental rethinking of the enterprise, shattering the idea and purpose that have driven the enterprise throughout history.

As Coase’s Theory basically states, the enterprise exists because it can do things most efficiently and with reduced transaction costs as a unit. Before the cloud, the enterprise completed transactions, exchanged information, provided services, designed products, and accomplished other activities within its own four walls—with, perhaps, an occasional use of outside resources. The cloud now enables the enterprise to connect with parties on an as-needed basis and to tap into a shared pool of intelligence at will. As a result, CIOs and other business leaders are realizing that all expertise no longer must reside within the enterprise itself.

Intelligence has, of course, always existed outside the enterprise, but it was inaccessible by most people because no mechanism existed for the owners of the intelligence to easily share it. With the cloud, people’s ability to find this intelligence, use it, and leverage it has expanded greatly. Equally important, the cloud has created a whole new marketplace where the owners of this intelligence can sell their intelligence at a micro-level, making a sustainable profit from doing so. This marketplace brings together those who own the intelligence with those who want to buy it and use it as part of delivering services to their customers, and those who can benefit from having access to the intelligence (at a price) in the products they use.

The Shifting View of the Cloud

Until now, enterprises have looked at the cloud mostly as a place to share commodities, such as servers, platforms, software, and stored databases. This commodity sharing will continue in the future. But, more important, many enterprises are accepting the cloud’s higher function as a mechanism for sharing intelligence—even though they view this provocative concept as being against their desire to directly control each aspect of their products.

When an enterprise shares a commodity, the control is still with the enterprise, as it is when automotive manufacturers build cars: They buy iron and steel from one source, lights from another, and seats and other parts elsewhere—but still tightly control these interfaces. But the moment the enterprise starts thinking about shared intelligence, it is truly exploding the purpose for which the enterprise has always existed and the way the enterprise has always worked.

For example, manufacturers of washers and dryers have made products, sold them to customers, and provided maintenance, if needed. These products today, though, don’t just do the laundry. They are smart devices connected to the cloud, and they have the ability to tell the owner the best time of day to do the laundry, based on fluctuating prices of electricity. Such intelligence gives the manufacturer an on-going relationship with the customer, a relationship made possible because the manufacturer buys a vendor’s cloud-based intelligence, which it could not have developed and cannot control within its own four walls.

“The acceptance of the cloud as a mechanism for sharing intelligence is forcing a fundamental rethinking of the enterprise, shattering the idea and purpose that have driven the enterprise throughout history”

This is a win-win-win marketplace. The owner of the intelligence makes money by selling it to the manufacturer; the manufacturer makes money buy selling the intelligence to the product user on an ongoing basis, and the user benefits by saving money doing the laundry when electricity is less expensive.

The Shifting View of the Enterprise

This sharing of intelligence has the potential to create new revenue streams for many enterprises that can develop connected and smart products like washers and dryers, the Nest Learning Thermostat, and Philips’ Hue Connected Bulbs for lighting the home. But its more profound effect will be on the way enterprises view themselves going forward—when they begin buying (not developing) the intelligence that drives their products, when the skills needed to support the products resides outside their four walls just as often as within them, and when both their income and cost structure become significantly more variable.

To take advantage of cloud-based shared intelligence, enterprises must make three needed adjustments:

• First, they must start thinking of themselves as a collection of shared capabilities and expertise that exist both within their own walls and in the cloud. This is a completely different operating model than exists today.

• Second, they need to redesign their technology backbone to ensure that sharing intelligence from the cloud can happen in a secured manner and with the speed needed. This change will require security to become a forethought, instead of the afterthought it is now with many enterprises, and will require IT architecture, networks, and platforms to become more robust and dynamic than they are today.

• Third, the enterprise must start thinking about its revenue in terms of chunks of value-based services delivered, instead of products delivered. Automotive manufacturers might, for example, bring the business model of NetJets down to the automobile level. Then instead of selling or leasing vehicles to their customers, they would sell the use of vehicles with drivers, enabling customers to always be picked up and driven to their destinations in the particular desired makes and models—Porsche 914 or Tesla Model S, perhaps—when they need to travel somewhere.

The cloud as a mechanism for sharing intelligence is already a reality. And it is already forcing a fundamental rethinking of the enterprise and shifting the foundation on which it is grounded. While this cloud-based sharing of intelligence may not affect every enterprise, most are beginning to reconsider the way they approach their business and to restructure their operations so they can embrace this external intelligence.

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