Cloud computing is "a model for enabling convenient, on-demand network access to a shared pool of configurable computing resources (such as networks, servers, storage, applications, and services) that can be quickly provisioned and released with minimal management effort or service provider interaction."14 The emergence of cloud computing is transforming the way organizations purchase and manage computing resources,17 providing a fundamentally different IT model in which a cloud provider might be responsible for a range of IT activities, including hardware and software installation, upgrades, maintenance, backup, data storage, and security. The result is that organizations can lower their IT capital expenditures and operating costs by purchasing on-demand technology resources (such as increased data storage, bandwidth, and processing power) while eliminating the need to maintain outdated equipment. Cloud services also include environments for application development and access to key technologies, software, and skilled IT personnel that might otherwise be too costly and difficult to obtain and maintain (see Figure 1).
Along with hardware, software, and technology platforms, cloud computing delivers additional benefits, including reduced IT-related costs and increased business agility.18 With cloud computing, the IT expenses generally associated with developing, procuring, administering, and maintaining in-house IT infrastructure can be shifted to the cloud vendor. Cloud computing enables organizations to lower IT capital expenditures, as well as operating and maintenance costs, while redirecting resources toward core business activities, turning cloud computing into an IT-related strategy for competitive advantage.
However, despite these benefits, organizations face obstacles adopting cloud services,8 including uncoordinated adoption by stakeholders, inadequate business and technical acumen, and data security.17 There may also be inadequate understanding between the organization and the vendor about the span, scope, and implementation of the services. Since an IT investment can be wasted or implemented in a non-optimized manner, organizations are unlikely to fully realize the benefits or related competitive advantage when cloud services fall short of expectations. What factors are most likely to enable deployment of cloud computing so as to differentiate the organization from its competitors? We take the resource-based view of the organization to identify organization-specific capabilities that contribute to deployment of cloud computing. To help identify them, we collected data in 2011 from a global sample of 314 companies in various industries, including manufacturing, financial, logistics, IT, and education. The results reflect the importance of technical, managerial, and relational capabilities for leveraging cloud-computing resources to maximize the likelihood of deployment success and competitive advantage.
Cloud computing is organized into three standard service models: Infrastructure as a Service (IaaS), Platform as a Service (PaaS), and Software as a Service (SaaS).11 With IaaS, the cloud vendor provides the servers (such as processing capability), storage (such as replication, backup, and archiving), and connectivity domains (such as firewalls and load balancing), with the client organization charged based on their use. PaaS describes a model in which the cloud vendor provides the platform that allows creation and deployment of applications and services the organization accesses through the Internet. The organization has access to an application-hosting environment for application design, development, and testing without the complexity and cost of procuring, deploying, and managing the infrastructure. Organizations adopting SaaS gain access to software hosted by the cloud vendor through a thin clienta Web browser. In SaaS environments, the cloud vendor has complete control over the application, including capabilities, updates, and maintenance (see Figure 2).
The three main delivery models are the public cloud, the private cloud, and the hybrid cloud.4 The public cloud provider operates a shared-service environment accessible to any customer, whereas in the private cloud the organization has exclusive use of an isolated cloud. While the private cloud might address some security concerns, cost savings are more limited. A hybrid cloud environment combines both service-delivery models in situations where a client organization might require the extra capacity of a public cloud while primarily using the private cloud. This view of cloud computing reflects how organizations derive value from ITby reducing costs and increasing computing capacity and services. However, organizations moving to cloud computing may not realize these advantages if cloud deployment is ineffective. Our study highlights how organization-specific capabilities are necessary for leveraging cloud resources and increasing the likelihood of deployment success (see Figure 3).
Resource-based theory views all organizations in terms of available resources and how to combine them to differentiate them to achieve competitive advantage;1,2 for example, an organization developing innovative IT enabling it to be more effective than a competitor has positioned itself for greater economic return. The resource-based view stresses that organization resources that are valuable and rare can help yield short-term advantage over competitors. An organization implementing a cloud service that results in increased IT economies of scale thus has an advantage over a direct competitor until the competitor also implements the cloud service. The efficiencies potentially provided by cloud computing are easily duplicated and may provide only short-term competitive advantage. Long-term advantage is possible only when resources are not easily imitated by competitors and adequate substitutes are not readily available. While cloud-computing resources are not rare and inimitable, the idea of resources encompasses more than physical assets; for example, organization-specific capabilities play a role in competitive advantage by helping differentiate the organization from its competitors. Capabilities could include leadership, business-systems thinking, relationship building, architecture planning, contract facilitation and monitoring, and vendor development.6
The resource-based view emphasizes performance differences among organizations based on how they leverage their resources,1 describing creation of unique, valuable, inimitable organization capabilities or competencies. Proponents of capability building contend organizations create economic separation by being more effective than their competitors at deploying resources.15 When unique capabilities are combined with other resources that are more homogeneous, or cloud computing, the result is differential organizational value. Capabilities are generally organization-specific, nontransferable, and embedded in the organization, with researchers classifying IT-based capabilities into three categories: IT infrastructure, IT business experience, and relationship infrastructure.3 This differentiation is the framework we use to identify specific IT-related factors and their effect on cloud-computing performance.
To deliver technical and economic advantage, cloud computing must be deployed, as well as implemented, successfully. Deployment supersedes implementation, because merely utilizing the services of a cloud vendor does not by itself differentiate an organization from its competitors. Competitors likewise can implement cloud services, imitating resulting IT efficiencies. Successful deployment denotes the realization of unique or valuable organizational benefits that are a source of differentiation and competitive advantage.
IT-related success is described through three categories of derived benefit: strategic, economic, and technological.7 Strategic refers to an organization's renewed focus on its core business activities that can accompany a move to cloud computing when its IT functions, whole or in part, are hosted and/or managed by a cloud vendor. Economic refers to an organization's ability to tap the cloud vendor's expertise and technological resources to reduce in-house IT expenses. Technological refers to an organization's access to state-of-the-art technology and skilled personnel, eliminating the risk and cost of in-house technological obsolescence. Deployment is defined in terms of the strategic, economic, and technological benefits realized through cloud computing, setting the organization apart from its competitors.
Optimizing the strategic, economic, and technological benefits derived from cloud computing is a function of an organization's ability to use its own IT-related resources and capabilities to leverage the resources of the vendor. Since cloud computing is generally characterized as an IT service (with the vendor providing and maintaining the software and hardware infrastructure), the ability of the client organization to integrate and utilize the vendor's services determines the extent IT benefits are likely to be achieved. Organization-specific capabilities related to implementation, integration, and utilization of cloud services play a key role in deployment performance. Our study focused on three IT-related capabilitiestechnical, managerial, and relationalcharacterized as a major potential source of competitive advantage (see Figure 4).3,12 Since cloud-computing services are duplicated so easily, an organization's unique IT-related capabilities are difficult to copy and yield deployment success.
Technical. Technical capability represents physical assets (such as computers, network equipment, and databases) or collective resources that give an organization functionality and a flexible, scalable foundation. It means being able to respond quickly to technology shifts in the marketplace while not inhibiting implementation of new technology. Technical capabilities are a means of achieving greater IT economies of scale and competitive advantage when leveraging the resources of cloud computing; for example, being responsive to the solutions offered through cloud services is more likely when the client organization's technical capability is sufficiently adaptable and scalable, enabling it to realize IT efficiency and reduced IT expenditures (deployment success) more quickly than a competitor.
Trust develops through communication, procurement, and transactional activities, culminating in the IT manager's perception that the vendor is trustworthy, reliable, evenhanded, and working in the best interests of the client.
An organization's unique technical capabilities coupled with cloud computing could yield improved cycle times and streamlined business processes distinguishing the organization from its competitors. The organization could also integrate new technologies (such as cloud computing) with existing platforms and exploit opportunities synergistically across business units; the business and economic potential of emerging technologies would be realized more quickly and cost effectively. Greater technical capability would also limit the complexities of cloud implementation and integration, enabling the organization's IT department to deliver new technology more efficiently. Robust technical capability would increase the likelihood that adopting cloud services would enhance IT-related economies of scale and free up resources for core business activitiescomponents of performance and competitive advantage.
Managerial. The likelihood of an organization implementing a new system successfully is a function of its managers' ability to coordinate the activities associated with the implementation effort.16 Human IT capabilities are critical to the client organization realizing the benefits of cloud computing since they represent the accumulated training, experience, and insight behind the managerial capability needed to implement cloud services. Managerial capability includes the business and technical skills, as well as organization-specific knowledge, required to recognize the potential of emerging technologies to influence the organization's overall performance.
An IT manager's technical skills might include a systems-thinking approach to integrating emerging technologies into an existing IT infrastructure, as well as project coordination and leadership skills that work with technical skills to exploit new technologies ahead of the competition. Greater levels of managerial capability would improve the effectiveness of new technology integration into existing business processes. Organizations with highly capable IT managers or strong technical and business skills should likely be better positioned to distinguish among the services available from cloud vendors and implement cloud solutions that complement business strategy. Managerial capability also includes the organizational knowledge necessary to anticipate future business needs and understand how emerging technologies affect business performance. A capable IT manager is more likely to implement cloud computing effectively and also have a direct influence on the business outcome of cloud deployment. That is, an astute IT manager would exploit the advantages of cloud computing across business units to enhance overall organizational performance, likely minimizing IT-related expenditures and improving IT economies of scale.
Relational. Relational capability reflects an ongoing positive association between the IT manager and the cloud vendor where the vendor has a clear understanding of how cloud services benefit the client organization and is motivated to deliver. The client organization must be confident the cloud vendor is working to help it leverage its IT resources. Some of this confidence may develop from the give and take of procurement and contract negotiations, while trust develops through communication, procurement, and transactional activities, culminating in the IT manager's perception that the vendor is trustworthy, reliable, evenhanded, and working in the best interests of the client. Organizations looking to build strong, trusting relationships tend to be effective in their cooperative efforts with strategic partners.10 Since trust is a key factor in interorganizational relationships, we define it as a specific relational capability and worth examining in its role in cloud deployment.
In business, trust generally refers to one party in the relationship having confidence in the other party based on alignment of value systems.5 We define trust as the adopting organization's expectation that the cloud vendor will perform as expected and treat the client organization fairly and reasonably. Many interorganizational studies focus on the relational characteristics between organizations in terms of strength and degree of trust and how these characteristics affect renewal, dissolution, and other business performance outcomes. Researchers say interorganizational trust is a predictor of behavior between two organizations, with fulfillment of the positive expectations of the partner inspiring confidence in the relationship.19
Trust can be deconstructed into two dimensions: cognitive and affective.13 From a cognitive perspective, trust is the adopting organization's perception that the cloud vendor has delivered as promised. The cognitive dimension is understood in terms of organizational competence in which competence trust9 is based on the organization's belief that the cloud vendor has the requisite skills, abilities, and expertise to facilitate cloud deployment. The affective dimension assesses the perception of genuine concern and care, as demonstrated through the cloud vendor's actions. Openness trust9 highlights the importance of honest communication and willingness to share information between partners characterizing affective trust.
Openness trust contributes to competitive advantage since it develops over time and may be difficult to imitate or substitute. The stronger the tie between the client organization and its cloud vendor and the more intangible the value so derived, the more difficult it is for competitors to imitate and compete. Interorganizational trust thus plays a key role in the performance of cloud computing, as it should increase the willingness of the partners to work collaboratively, transfer resources, limit perceptions of opportunistic behavior, and lower transaction costs. Indicators of trust can include the cloud provider securing the client organization's data and delivering reliable services, evenhandedness in the negotiation process, and timely assistance. As relational trust increases with a cloud provider, the client organization realizes greater IT economies of scale and deployment success.
In the hypothesized relationships in cloud deployment, success depends on positive linkages with the client organization's technical, managerial, and relational capabilities (see Figure 5). Our survey of organizations adopting cloud computing was a test of the cloud-deployment model (see Table 1). We collected a total of 314 usable questionnaires based on on-site interviews, online participation, and telephone interviews. Participants, mainly IT managers, provided subjective evaluations of their relationship with cloud vendors, including the vendor's technical ability (such as speed of integration), managerial ability (such as to exploit emerging technologies),15 the affective dimension of trust (such as fairness and trustworthiness),19 and the cognitive dimension of trust (such as service reliability).9 We also asked participants for their perceptions of their deployments (such as "meets business needs" and "produces timely information")7 and verified all survey items met the requisite tests for reliability, internal consistency, and validity. We tested the structural-equations model using AMOS 7.0 analytical software, finding the model-fit indices in Figure 5 all meet the standard thresholds for acceptability of the fit of the data to the model (see Table 2).
We found that trust, managerial capability, and technical capability each have a significant relationship with cloud-deployment performance. The results of the user-vendor partnership imply that when a client organization and its cloud vendor develop a relationship characterized by trust, the client is more likely to realize the technical and economic benefits for which it originally pursued cloud computing. The importance of trust in the client-organization/cloud-vendor relationship cannot be overstated when organizations move to cloud services. Trust is a strong predictor of deployment success and key factor in effective collaboration and assurance that the client organization's cloud strategy is implemented in its best interests.
Moreover, when the client organization is characterized by strong technical and managerial capability, it is more likely to achieve greater IT economies of scale, as well as greater access to skilled IT personnel and key technologies. The three factors modeled as influential in the organization reaching its cloud-computing potential explain a large percentage (49%) of the variance in cloud-deployment success among our survey participants, senior IT managers. This is another indication of their importance in the cloud-computing model, where maximizing the benefits of the cloud is essential for operational performance and business success.
Sources of Advantage
While cloud computing should deliver benefits to any client organization, the challenge of differentiating an organization and gaining advantage depends on development and use of internal IT-related capabilities. Organizations may differentiate themselves despite applying similar IT solutions when organization-specific capabilities are employed to leverage IT resources. IT cost reductions, IT economies of scale, and performance (deployment success) are expected outcomes when technical, managerial, and relational capabilities optimize cloud implementation.
Despite implementing uniform information technologies, organizations can create competitive advantage through superior interorganizational relationships with their cloud providers. The related trust would lower the cost of negotiations, as well as the possibility of related conflict. It would also enhance cooperation between the organization and the vendor by creating favorable conditions for constructive exchange and shared governance. Genuine cooperation and the coordination of activities should encourage the organization and its cloud provider to explore new ideas, increasing the likelihood of achieving shared goals. In contrast, a lack of trust indicates a heightened sense of suspicion that would impede effective exchange of information. Such conditions would cause the client organization to rethink its vendor relationship and second-guess its own cloud-deployment decisions.
Organizations with rigid IT infrastructure generally lack the ability to fully implement a cloud strategy. IT managers who lack business knowledge and IT understanding of how to exploit cloud technologies or integrate a cloud solution across business units would likewise hinder successful deployment. However, an organization without effective technical and managerial capability might achieve performance gains and IT cost reduction but not competitive advantage.
Our study leads us to suggest that prior to implementing cloud computing, any potential client organization should assess its technical and managerial capabilities, as well as its ability to develop positive relationships with IT providers. The extent these capabilities are (or are not) developed determines how well cloud services achieve the organization's goals and potential competitive strategy. Organizations devoid of such capabilities are encouraged to develop or obtain them prior to cloud implementation to create the proper IT environment. Effective organization-specific IT capabilities mean greater probability of cloud success, with the organization more likely to reduce IT costs, achieve IT economies of scale, and redirect resources toward key business activities and core competencies that yield long-term competitive advantage.
Cloud computing services can provide IT functionality to small and large organizations alike. Organizations throughout the industrialized world, challenged by competition and government regulation, show strong interest in cloud computing to help reduce operating costs and increase business agility while addressing their computing and data-storage needs.18 While many benefits are associated with cloud computing, one key to success is for the client organization to use its IT-related capability to leverage cloud-provided resources. Organization-specific IT capabilities, coupled with homogeneous information technologies, promise a differentiated IT environment that can be a source of competitive advantage. Management and market factors being equal, organizations that develop and strengthen their IT-related capabilities are likely to realize greater value from their investment compared to organizations that implement only a cloud resource.
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