While consumers and enterprises hail “the cloud” for its ability to provide flexible, low cost and easily accessible computing power, traditional hardware and software providers tend to see the innovation somewhat differently. For them, the cloud is a disruption of the highest order that threatens their competitiveness and in some cases their survival. As such, these companies must make dramatic changes in their strategies, operating models and governance approaches to succeed in this fast-growing cloud market.
With the cloud supporting an ever-expanding collection of “anything-as-a-service,” or XaaS, solutions, established hardware and software companies recognize they face one especially vexing challenge: Figuring out how to develop appropriate operating models to capitalize on customer demands for cloud-based XaaS solutions while continuing to support traditional product-focused businesses that form their core offerings.
This is not a simple task, as our research confirms. The research included interviews with more than 40 senior executives from 30 companies that operate or are building software-as-a-service, platform-as-a-service or infrastructure-as-a-service cloud-based businesses.
Executives we interviewed emphasized how hard it is to understand the complexity that comes with providing a service versus a hardware “box” or software license, and then to adjust capabilities to enable these “as-a-service” offerings. As one business unit executive for a XaaS provider said, “This is a massive shift in how we manage and deploy resources. If companies aren’t thinking about this, they should be. But the question becomes: Is the business model moving to something that you have in your DNA to change?”
The research confirmed that virtually all companies are struggling to deal with operational complexity caused by XaaS, and by new business models more broadly. The reality is that building the new XaaS capabilities required to succeed, and embracing a services-centric mentality, requires hard work that touches virtually every corporate function. In most cases, the launch of new XaaS businesses far outpaces a company’s operational ability to deliver and scale, the research found. This can have disastrous consequences.
“We are going 100 miles per hour and the cliff is 10 miles away,” explained the general manager of a cloud business. “We go ‘kaboom’ in just a few quarters unless we get our operations functioning quickly.”