The heaviest users of cloud applications are the companies that manufacture the technology hardware that enables cloud computing (computers/electronics/telecom equipment), while healthcare services providers are the lightest users (in terms of average number cloud apps per business function).
- Industry comparisons in number of cloud applications/company
- Industry comparisons in number of cloud applications/company by 2014
- Industry leaders and laggards in benefits from shifting on-premises applications to the cloud
- Industry leaders and laggards in benefits from launching new cloud applications
- Case study: $5 billion consumer products company
We asked our survey respondents (who worked in a variety of business functions in addition to IT) to indicate the average number of cloud applications that their function had been using in 2011. We then looked at their answers by industry in all four regions combined (in order to get larger industry samples). We had large enough industry samples to report on 16 major sectors.
The industries’ usage of cloud applications per function ranged from 8.54 at the high end (in computer/electronics/telecommunications equipment manufacturing) to 3.39 at the low end (healthcare services/providers). (See Exhibit VII-1.) For 2011, the industries with the greatest number of cloud applications per business function were:
- Computer/electronics/telecom manufacturing (by far the largest number of cloud apps per function)
- Financial services/banking/insurance
- Industrial manufacturing
- Telecommunications services (carriers)
Industries with the fewest number of cloud apps per function were healthcare services, chemicals, energy and utilities, metals and mining, and media/entertainment/sports. The media industry’s relatively low adoption of cloud computing may reflect its reluctance to put its intellectual property in the cloud – particularly, public clouds – for fear of digital theft.
We also asked the survey respondents to project how many additional cloud applications they expected their business function to have by 2014 – applications not including those today. We thus were able to calculate their projections on the total number of cloud applications that they expected to see in their functional area. The range of those applications/function went from 9.25 to 19.4 – effectively a doubling of apps/function at the high end and a nearly tripling of apps/function at the low end.
Once again the industries expecting the largest number of cloud apps/function were the same four: computer/electronics/telecom equipment manufacturing, telecom services, financial services and industrial manufacturing.
However, the projections of the retail and transportation/logistics survey respondents would have them vaulting higher in the list by 2014 – over automotive, aerospace/defense and consumer products manufacturers.
Heavier Users of Cloud Applications Get Bigger Benefits
In addition to wanting to know which industries were heavier users of cloud applications than were other industries, we wanted to know which sectors were better users of the cloud. It turned out that the industries with higher numbers of cloud apps per function in 2011 were industries that were enjoying greater benefits from cloud applications – both those that were shifted from on-premises computers and those that were entirely new applications made possible by the cloud.
To better understand which industries were generating the most value from cloud applications, we analyzed our data by first rolling up the responses across all four regions of the world and then categorizing them by industry. That left us with 16 industry segments with at least 12 respondents per industry. We then sorted these respondents out by understanding which ones finished in the upper or bottom quartile of results to date from cloud applications. That left us with “leaders” and “laggards” in each industry sector based on who had generated the greatest benefits from:
- Cloud apps they have shifted from on-premises computers. The “leaders” here were companies that had generated the greatest improvements in such metrics as IT cost reductions, increases in standard apps and business processes, cycle-time reductions in ramping IT resources up or down and in application enhancements, reductions in system downtimes and application fixes, and increases in analytics reports.
- Entirely new cloud apps for which they had no on-premises predecessors. These “leaders” finished in the upper quartile of aggregate benefits in percent increase in new business processes tested and launched, percentage increases in new products/services tested and launched, annual revenue increases from new offerings in existing markets, and cycle-time reductions to enter new markets.
Industry by industry, in each of the two areas above, we looked at which ones had a larger percentage of “leaders” than “laggards.” The findings revealed several surprises.
Industry Leaders and Laggards in Shifting On-Premises Apps to the Cloud
The industries with a much higher percentage of “leaders” than “laggards” were:
- Automotive (31% of whom were “leaders” and 19% were laggards)
- Computer/electronics/telecom equipment (29% vs. 17%)
- Aerospace & defense (29% vs. 19%), and
- Banking/financial services/insurance (29% vs. 19%).
In contrast, the industries with much higher percentages of laggards than leaders were:
- Pharmaceuticals (15% were “leaders” vs. 40% that were “laggards”)
- Media/entertainment/sports (17% to 33%), and
- Energy & utilities (21% to 33%)
Industries Leaders and Laggards in Putting New Applications in the Cloud
We did a similar analysis of leaders and laggards by industry around the data on benefits achieved to date from launching entirely new applications in the cloud. A different set of industries emerged as leaders and laggards here – including leaders that had been laggards in benefits from shifting existing apps to the cloud, and laggards that had been leaders.
The industries on this metric with the highest ratios of leaders to laggards were:
- Computer hardware/electronics/telecom equipment (46% were leaders and 33% were laggards)
- Media/entertainment/sports (42% to 33%)
- Telecommunications services (33% to 24%)
- Transportation/logistics (35% to 26%)
Technology-enabled innovations in products and services are critical to all four of the above industries, and perhaps that’s why they have more leaders than laggards in launching new cloud applications. In the computer industry, Dell Inc. is one of a number of companies that are tapping cloud services to market products and services to both enterprise and consumer customers. (See case study on Dell) In the media industry, educational publishing and testing companies like CTB/McGraw-Hill have become highly dependent on scalable technologies that enable them to shift the delivery of their content from print to online. CTB/McGraw-Hill is looking at cloud-based models as a highly cost-effective way to host its public and private school student assessment exams. (See case study on CTB/McGraw-Hill)
In contrast, five industries had a much greater number of laggards than leaders in generating benefits from entirely new applications they put in the cloud:
- Pharmaceuticals (25% were leaders vs. 55% that were laggards)
- Healthcare services (22% vs. 50%)
- Computer software (8% vs. 33%)
- Automotive (19% vs. 39%)
- Chemicals (20% vs. 38%)
How the Cloud Has Helped a Consumer Products Company Scale Up Consumer Interactions Cost-Efficiently
A $5 billion privately held consumer products company has found a cloud-based application to be critical in handling tens of thousands of contacts from consumers annually. “It is a completely [software as a service]-based model for consumer affairs,” says an IT executive in the firm, which wanted to remain anonymous. “It’s allowed us to handle huge growth in consumer contacts. It’s established cloud an acceptable option that works, not a technology fad that will go away.”
The company’s three biggest applications of cloud have been in consumer affairs (responding to the consumers who purchase its products at retailers), human resources, and travel & entertainment. “Cloud enables us to bring in a new application without needing the $10 million and 18 months to build it,” says the IT director. “And while it doesn’t solve all of our problems, it’s still a viable option.”
The company has long sold its product through retailers, which usually have the first and most personal interactions with consumers. But the cloud has given the company a highly cost-effective way to get to know its customers better. “Consumer affairs is one of those areas that most companies don’t fully appreciate,” says the IT director we spoke with. “The first thing you learn in a marketing class is that getting a new customer is five times more expensive than keeping an existing one. The amount of information you can gather from your consumers from their interactions with you is truly astounding.”
Today the cloud is helping the company understand far more about what’s on the consumer’s mind – before, during and after the time of purchase – a 360-degree view of the consumer.” The company’s head of consumer affairs is a big proponent of cloud applications as well. The cloud application lets a customer service agent review consumers’ comments and determine what teams within the company should be notified: what country unit and what business function (e.g., packaging issues go to operations, product complaints go to R&D, etc.). At the same time the agent can choose a predesigned response letter, customize it, and automatically correct it for spelling mistakes. The agent can then easily notify the relevant employee of a problem that needs to be resolved.
“The agent can use the same customer record to send what we call a ‘task’ to another one of our users,” explains the consumer affairs executive. “For example, we might alert someone in a factory’s quality assurance department to a consumer who called with [a product problem]. The agent creates a task to the quality director in charge of investigations for that product. With the use of special coding, the task will also send an email to the quality control person announcing [a replacement product] is coming in the mail.”
The head of consumer affairs uses the cloud system to send monthly reports on consumer complaints to company’s marketing, packaging, quality and other departments. The system lets the director’s team send out quick online surveys to consumers who have used the contact system.
“It’s all about building credibility in the brand,” says the consumer affairs executive. With a cloud-based system, the team has the tools to do it on a global basis.
Staying Technologically Advanced Without All the Costs
Along with providing deeper knowledge about consumers, the cloud has also dramatically increased efficiency. The IT director told us the firm can now use applications far less expensively and launch them far more quickly than they could in the past. “We’re not in the IT business, or the server farm business, or the application business,” the IT director says. “There are people out there that do that better than us.”
Using cloud technology also freed up money previously spent on corporate IT, helping the firm focus its investments on new products (through acquisitions and launches), and manufacturing and marketing them. Part of the company’s expansion strategy has been to keep a tight grip on costs, including IT. The company’s IT budget is less than half its industry average.
The company uses cloud applications hosted at a third-party data center (which has multiple tenants, and thus is a public cloud). And although the IT director says that a public cloud can limit how a company configures an application (since other companies may share it), the cloud vendor customized it for the company.
Security in a Public Cloud Seen as a Red Herring
The IT director hears many IT executives outside the firm worrying about the security of public cloud services providers. However, he says such concerns are unfounded. “It continues to surprise me that security is a big issue with cloud. I can guarantee that security of certain cloud vendors is better than what you can do in-house. Some of these cloud vendors do a better job security-wise than we do, because they do it for so many people, and they know that they’re going to get hit on that.”
He says the bigger issue is about the legal and regulatory implications of where data is housed. Nonetheless, these concerns haven’t stopped the company from aggressively adopting public cloud applications in its business.