The impact of the cloud : on the strategy of IT consultancy companies

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The impact of the cloud

“On the strategy of IT consultancy companies”

Author: ing. Wouter Claeys Student number: 10679405

31-08-2015

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Executive summary

Cloud providers deliver services that are cheaper. Since they can use the economies of scale they are more efficient compared to companies that host those services internally. Consequently companies will be tempted to change their IT strategy and choose for cloud services for the information systems that are not part of the core competence of a company. In Exhibit 1 you can find on forecast for the public cloud services until 2020. The global market for cloud services have grown from $5 billion to $73 billion from 2008 to 2015 and in the year 2020 it is expected that the market will almost double again to $103 billion.

In this paper we argue that this exponential growth is not only caused by innovations but also by replacement of the current services provided by IT consultancy companies. An investigation is made of the IT market to demonstrate which impact the cloud can have on current IT

implementations. In the case study the impact that the cloud has on the current business models of an IT consultancy company such as Avanade is demonstrated. Some recommendations are given for the strategic plan of this company to cope with this challenge and to initiate the change management needed such as focusing on creating services themselves and/or focusing on the innovation that creates added value for their clients.

As a conclusion it is said that the time to act is now! The cloud services will destroy a big part of the current IT consultancy market within five years. IT consultancy agencies should do a

research on what their core competences are, create a new business plan around their core competences and implement a change management program to ensure they can still be relevant in the IT market over ten years.

To prove that time is act is now, this paper uses well known and easy to understand frameworks borrowed from the field of strategy and these frameworks are implemented for the use of information systems. Because of the selection of the frameworks it makes it intuitive to understand why cloud services are destructive for the current business model of IT companies and that these companies should innovate their current strategy.

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Acknowledgments

I would like to express my appreciation for my two mentors Prof. dr. Hans Borgman and Pieter Wickel for their support and guidance while writing this thesis.

And I also would like to express my gratitude towards my family who have been supporting me emotionally during my MBA and writing this paper.

Wouter Claeys, August, 2015

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I. Introduction

The cloud is the newest evolution within the IT world. Executives are investigating how the information cost can be reduced by using cloud services and how the cloud can assist their company to create added value. Mell & Grance describe the cloud as: “Cloud computing is a model for enabling ubiquitous, convenient, on-demand network access to a shared pool of configurable computing resources (e.g., networks, servers, storage, applications, and services) that can be rapidly provisioned and released with minimal management effort or service

provider interaction. This cloud model is composed of five essential characteristics, three service models, and four deployment models.” (Mell & Grance, 2011, p. 2). In the exhibits 2 to 5 you can find a history of the cloud, and an in-depth explanation on the different models used by the cloud model. Exhibit 6 shows based on a survey that the companies are just started to transform their information systems from locally hosted to services to cloud services. Exhibit 7 and 8 gives a short overview of the advantages and disadvantages of the cloud. Joshi indicates that the shift from the traditional model to a more dynamic model has started. “In a short span of time, cloud computing has changed the way in which businesses and individuals consume computing

resources. Cloud signifies a fundamental shift from a traditional model to a more dynamic model of consuming IT in which resources are more flexibly deployed than was the historical models.” (Joshi, 2012). In this research we are interested on how the services provided by consultancy agencies are effected by the introduction of the cloud in the business world. To investigate the possible change the cloud introduces this paper will use Porters’ value chain model (Porter, 1985) to identify how information systems add value to a company. Once the current information systems are identified the paper will identify which services provided by IT companies are most likely to be replaced by services hosted in the cloud. Based on this research the market where IT consultancy companies are operating in, is defined and then the paper will explain what the impact of this market change using Porters’ five force model (Porter, 2008) on the operations of an IT consultancy company. To illustrate this impact a case study is done by using one

consultancy company called Avanade as an example. Within the case study Barneys’ recourse based view (Barney, 1995) is used to indicate the strengths of the company followed by the impact on the current services that Avanade provides to its customers based on the BCG matrix

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(Hedley, 1977). At the end of the study recommendations for Avanade are provided. The paper will conclude with a general recommendations for future work.

Research question

What is the impact of the services provided by cloud providers on the strategy of consultancy companies? How can consultancy firms such as Avanade take advantage of this new technology?

II. Framing: useful concepts and frameworks

With the introduction of cloud services it is expected that these services will be adopted by companies. Some of these services will replace the services provided by the IT consultancy agencies. This paper is based on strategic theories which are used to determine the impact. This chapter describes the theories and frameworks that are used in this paper. We have selected these frameworks because they have proven their worth within the field of strategy and because they are easy to implement and therefor these models assist to make it clear and intuitive why cloud services are destructive for the current business model for IT consultancies companies.

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A. Porters’ Value chain model

“The value a company creates is measured by the amount that buyers are willing to pay for a product or service. A business is profitable if the value it creates exceeds the cost of performing the value activities” (Porter, 1985). Porter describes in his article a model how the activities of a company can be divided to create value. (Porter, 1985) Firstly the model divides the activities in primary activities and support activities. The primary activities consist of: Inbound logistics, Operations, Services, Outbound logistics and Marketing & Sales. The support activities consist of: Procurement, Technology management, Human resources management, and Infrastructure.

FIGURE 1-THE VALUE CHAIN OF BY PORTER

This model will be used to identify how information systems support companies. By having the knowledge on how information systems are used inside a company we argue that we can predict the choice companies will make either use the cloud service or a service provided by a

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B. Porters’ Five forces model

Porter argues in his paper that there are five force that drive the competitiveness in the market: Threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitute products or services and rivalry among existing competitors. (Porter, 2008).

This model will assist in answering the question what the impact of the cloud is on the market of IT consultancy companies.

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C. Barneys’ Resource based view

Barney describes a model on how to obtain a sustainable competitive advantage. This framework is based on four questions:

1. Is there value being created? 2. Is the value that is delivered rare?

3. Is value created costly to imitate this value? 4. Is the organization organized ready to capture this value?

(Barney, 1995).

Once all those four question are answered positive then a company can claim that they have sustainable competitive advantage.

This model will be used in the case study to analyze the current sustainable competitive

advantage the researched company has. Once this is determined the same analysis will be done again with taken in account the new factor of the cloud services into account. This will identify the impact that the cloud services have on the business model of the company that is researched. FIGURE 3-RESOURCE BASED VIEW BY

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D. The Boston consultancy matrix

The Boston consultancy matrix is a framework that allows an inside view of the company (Hedley, 1977). The model uses two axis (market growth and market share) to determine how profitable a product of services is. By having these two axis they create a matrix with four parts and it provides for each part an explanation on what to do with that product or service.

1. Question marks: High market growth and low market share.

Potential to become a star. Companies need to decide if they want to invest in those or not to grow their market share or not.

2. Star: High market growth and high market share.

The product or service is well

established and can become cash cows. Less investment is needed and it is time to make these profitable.

3. Cash cows: High market share and low market growth

These products or services are (very) profitable but the market is not growing anymore and the potential to grow your revenues is limited.

4. Dogs: Low market share and low market growth

These products and services are weak in the market and are should be thought of to be liquidated.

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A healthy company would like to have a good balance between the question marks, stars and cash cows to ensure their continuity in the market.

This model will be used in the case study to analyze how the current services are positioned for the researched company and how these services will make a change in the future due to the introduction of the cloud services.

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III. The Market of IT consultancy companies

A. How do information systems provide value to a company?

Every activity to create value must be done at the lowest possible cost to create extra value for a company. Currently information systems are helping to reduce the cost in every activity that a company requires. In the table below examples can be found of software packages that are used in companies to assist in creating value based on the Porters’ value chain (Porter, 1985). Only the activity of technology management will be unique for every customer. The area of technology management can be defined as the place where information systems can create a competitive advantage for companies based on technology. Therefor this area is left out in the table.

ACTIVITY OF COMPANY SOFTWARE PACKAGE

Primary activities (buying and selling goods)

 ERP (enterprise resource planning) software

Marketing & Sales  CRM (Customer relationship Software)

 Internal and external websites.

Human resources management  Collaboration software

 Performance management software,

 Operating systems for computers being used by employees

Infrastructure management (general management, planning finance, accounting, legal, government affairs and quality management)

 Strategic software

 SAP for accounting and finance

 Mailing software (outlook)

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As the table above shows all the information systems used by companies can be divided in categories. Most information systems assists companies in their day to day operations. For each of those systems hardware is needed to run these information systems. To ensure these systems are operational, in the traditional model, companies will have a surplus of hardware to enable that information systems can cope with the growth of a company, failures of hardware or when an event is triggered that requires rapidly upscaling. Especially for the types of information systems that are used by every company for the daily operations, companies will prefer to have the cost for these systems as low as possible.

B. How do cloud services change the market?

In the traditional model of information systems, companies need the infrastructure to host the information systems in-house and they have to buy all the licenses required to run the

applications. This implies that active monitoring is needed of the usages of these information systems and that there is a need to validate on a regular basis that the information systems used are still providing added value to the company operations and are worth their cost. Most software packages are based on licensed based model and have a relative short lifetime, somewhere between five and ten years. This short lifetime is driven by the software venders because they create new versions of the software and stop supporting older version after a certain point in time. Active monitoring also cost time and money. Therefor most companies create a budget for the IT department and rely on the expertise of the IT department to ensure IT systems provide value and to ensure the cost of the information systems are reasonable. Cloud services provides companies with reports on a regularly basis and/or the reports are accessible dynamically through websites at any time. By using cloud services, the actual demand for information systems could be met more accurately and the cost for the actual demand can be more easily distributed to the consumers of the services, such as employees, customers, stakeholders, and so on.

A second important improvement when using the cloud is that the companies themselves do not have to think about failures of the infrastructure or about the maximum capacity that a system

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can handle. The scalability and reliability is guaranteed by the cloud services. In the traditional model, companies themselves must calculate the usage of the information systems; this includes estimating the hardware, network specification and license cost needed. The company itself doesn’t need to think about when to upgrade or downgrade storage or install newer version of information systems for example when using a service. To have an idea of the cost per user of the provided software by a company, the cost can be calculated as the total cost needed to run the applications (hardware requirements), licenses for software packages and sometimes the cost of energy to run all those systems. The total cost of usage for information system is then divided by the number of users to get an estimation of the cost of the information systems cost for each user. Normally a company does not have an in depth calculation for this and the result is that normal information systems would be divided in a sunk cost and a fixed cost to run the software for a company. The cloud services provide a clear understanding of the cost so that there is no sunk cost and only a fixed cost and variable cost. Cloud providers are pushing the economies of scale to their customers and try to persuade their clients to have a much customers as possible for their service to make use of the economies of scale provided by them.

In the traditional model having a good IT strategy could give a competitive advantage by managing and implementing the use of the information systems and hardware where the information systems run on efficiently. For example companies with a bad security plan to protect customer data have lost customers after the announcement was made in the media of a security breach and in some cases companies went even bankrupt. Another example is the use of information systems to help the employees to collaborate better, such as video conferences abilities and document management systems, could increase the productivity of the employees and therefore reduce the cost.

By using cloud services some concerns can be transported to the cloud provider. The cloud services as described above take care of the underlying issue of hosting the software inside the company such as scalability, reliability, maintainability, security and access. Because the cloud providers use the economies of scale they can deliver these services cheaper than a company

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who host the information systems in-house. Because of the lower cost and the transportation of ownership companies will make the switch to the cloud services.

C. How do cloud service change the governance of IT systems?

In the traditional model most companies have an IT department that is led by the chief

information officer (CIO). It is the role of the CIO to ensure that the information systems used by the company is up and running and at the lowest cost possible. A CIO receives a budget from the company to fulfill his job. The CIO uses this budget to buy hardware, install software and maintain information systems. To ensure that the operations based on software/hardware, the CIO employs people in his department and hires in some cases consultants to assist the

management of the information systems when specific competences are needed. In the traditional model we can state that almost every IT request goes through the IT department.

The cloud services will change this process within companies. Cloud services provide a part of the tasks that the IT department is currently charged with. Borgman et al. (Heier, Borgman, & Bouchaib, 2012) describes a “backdoor demand” where cloud services are being utilized without or very little communication the IT department. For example when the marketing department wants to have a promotional website for a short amount of time they now have the option to choice for a cloud service instead of starting a whole new project to create a website led by the IT department.

This has a major impact on IT consultancy companies as the decision making is shifting from a centralized decision process to a decentralized decision process. IT consultancy firms are losing their primary connection (the CIO) with the company and need to find new entry points within companies so they can provide their services.

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D. How does the IT consultancy market change?

Cloud providers deliver services and creates the possibility for other companies to create services in the cloud. This paper will use the five forces model of Porter (Porter, 2008) to explain how the market is changing for IT consultancy companies. The model explains five different threats a company must be aware of when doing business: Threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitute products or services and rivalry among existing competitors. Each of these threats are analyzed:

 Rivalry among existing competitors: Every IT consultancy agency is confronted with the impact of the cloud. The cloud creates new market and destroys part of the old market. The market that is currently based on the technical knowhow will shrink in the near future and the competition will be fierce. For the new market that is created by the cloud the possibilities are still uncertain but the potential is very high. Expected is that competitors will try to find a new niche but in the meanwhile because of the fierce competitions.

 Threat of substitute products or services: When services are provided in the cloud the need for managing software in-house will reduce. And therefore the need to use IT consultants to install, maintain or upgrade systems will reduce as well. Each new service created in the cloud is in competition with the current provided services by IT consultancy companies. Because of the rivalry among competitors it can be expected that some competitors will focus on creating new services and therefor this threat should be marked as high to very high.

 Bargaining power of buyers: By using the cloud services the clients of consultancies companies have a different alternative to choose from. Because companies will choose at least for some information systems cloud services the need for consultancy assistance will diminish. This will create a surplus of IT consultant in the market. Therefore it is expected that the price for consultancy will drop.

 Bargaining power of suppliers: Cloud providers are heavily investing in datacenters around the world and therefor will try to push their customers to use their services instead of the traditional licensed based information systems.

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 Threat of new entrants: The cloud provide services to be create and to be distribute software easily with relative low initially investment and potential high turnovers. This will introduce new services created by other venders other than the cloud providers. Because of the low initial investment needed to start a service company based on cloud technology it is expected that smaller companies will enter the market quickly and therefor the threat of new entrants will increase rapidly.

Based on the analysis above it is clear the cloud services are changing all the forces in the market. We argue that the cloud services are destructive for the current business model of IT consultancy agencies because they are changing the market.

In the case study below we will provide an example on how the cloud services are impacting one company in particularly.

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IV. Case study: Avanade an IT consultancy company

A. Introduction

Avanade, a worldwide consultancy company in information technology, is chosen for this case study because of the current strategy of the company. The consultancy company bases its current work solely on Microsoft technology. Microsoft is one of the big players in cloud industry. In a press release (News site of Microsoft, 2014) of the CEO of Microsoft explains the mobile-first and cloud-first strategy. This statement implies that Microsoft sees the cloud as their new main focus point and that Microsoft is gradually stepping away from the licensed based models for operating systems, such as Windows 8 or Windows Server and for some of its software, such as SharePoint. Microsoft is still selling the licensed based software but all new features will be introduced inside the cloud first. Since the strategy of Avanade to assist their clients is solely based on Microsoft products, the new strategy that Microsoft is implementing will have an impact on Avanade’s strategy as well. Therefor we believe that Avanade is an ideal candidate to illustrate the impact that the cloud services has on IT consultancy companies. Many consultancy agencies are assisting customers in a similar way, but did not make a strategic choice that binds them to one vender although they share the same clients.

B. The company Avanade

The vision of Avanade is: “Our vision is to be recognized as a global services innovator, helping customers realize the best results from the Microsoft platform.” (Avanade website, 2015) And the mission statement of Avanade is described on their website: “Avanade helps clients and their customers to realize results in a digital world through business technology solutions, cloud and managed services that combine insight, innovation and expertise in Microsoft technologies. We help clients with IT solutions that deliver business outcomes in areas such as CRM, .NET application development, data and analytics, collaboration, ERP, infrastructure and offer

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Freely translated this means is that Avanade is assisting companies in all their needs based on technical knowledge of Microsoft implementations. Derived from this statement we argue that the consultants are mostly technical driven with limited affections about the business the

customer is working in. When assisting the customer, the consultants will promote the Microsoft technology stack, which is very broad, but will never look at other venders.

Avanade is a worldwide consultancy agency; Avanade was created as a spinoff from Accenture in 2000 and has two parents: Accenture (80%) and Microsoft (20%). This special construction makes Avanade unique. The collaboration between Accenture, Microsoft and Avanade is called the power of three. This joint-venture is seen by the clients of Avanade as a big advantage. The strategy is setup on a global level is then the strategy is implemented on country level.

On the website of Avanade we can find evidence that Avanade has been successful with their strategy since the company was created. The company has grown to a company that is located in 70 locations (in 20 countries), counts 25,000+ professionals worldwide (17,000 professionals for offshore global delivery network) and was able to grow their revenues year-on-your with 20% to US$2 billion. Avanade targets clients which are in Fortune 500 or Global 500. The trend shown on the website is that the number of clients is diminishing during the years. This means is that Avanade is doing business with less clients but is doing more for each client as the revenue of the company is rising with 20% each year. The website also states that customers are loyal to Avanade, some clients have been customers for more than five year. (Avanade website, 2015)

C. Services provided by Avanade

Firstly Avanade provides their clients with services which are categorized in seven different categories: Application development, Collaboration, CRM, Data and analytics, ERP,

infrastructure services and managed services. Each of these services is divided in subservices to provide more specific services. In the table below you can find an overview of these seven different categories.

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Service Description

Application development

With this service Avanade assist their clients to implement information systems based on the specific client needs.

Collaboration With this service provides implementation knowledge on how to create collaboration between employees based on technical solutions.

CRM With this service Avanade assists customers to create inside of the needs of the customers of the clients based on technical solutions.

Data and analytics With this service Avanade assists their clients in understanding on how stored data can be used to create value.

ERP With this service Avanade assists their clients who have a dynamic operation to create a matching solution. Most ERP systems implemented in companies are quite static as they are originally where built for

production industries.

Infrastructure services

With this service Avanade assist their client to choose the right platforms to host their infrastructure and help implement the information systems for each platform.

Manage services With this service Avanade assists their customers to maintain their current information systems and help improve the services to their customers to identify and to present solution to reduce the costs.

TABLE 2-SERVICES PROVIDED BY AVANADE

Secondly Avanade creates business visions based on technical solutions so that companies can implement these visions in their companies with the assistance of Avanade. On the website of Avanade two examples are found. A first example is IT without boundaries, where it is explained

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that IT can still be used as a strategic advantage. A second example is Work redesign, were it is explained that implementing new technologies can perform employee’s productivity as

technology, place, and speed; storage is not limiting their activities as much.

D. Effect of the cloud services on the competitive advantage of Avanade

To analyze how Avanade was able to grow so fast this paper uses the VRIO frame work of the resource based view (Barney, 1995) to identify the sustainable competitive advantage Avanade created in the last 15 years.

 Valuable: Avanade delivers value to their customers by creating results using Microsoft technology.

 Rare: Avanade specialization on Microsoft technology only is rare for a consultancy company.

 Costly to imitate: The alliance between Microsoft and Accenture which makes Avanade unique and provides Avanade insides in technical and business knowledge of the big companies.

 Organized to capture value: Avanade is able to capture the value and to create value for its customers by having an open culture and a good hiring policy that ensure that only the best technical people with a good Microsoft background are selected.

Based on this model Avanade was able to create a sustainable competitive advantage by creating a culture where technical knowledge is being rewarded and where everyone who contributes is rewarded for it. Having two partners, one that helps or with business knowledge and processes and another partner providing insights on the new development in the IT world is priceless.

As the market analysis shows cloud services shield the need for technological knowhow to assist the clients of Avanade. When we answer the questions again from the VRIO framework taking in account the services that can be provided by the cloud, we notice that what has made Avanade special, namely the technical knowhow, is no longer applicable for their clients. Neither is the

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specialization on Microsoft technology. We argue that the current business model will give Avanade only a competitive parity (answer no on question two) or even less a competitive disadvantage (answer no on question one) when Avanade does not innovate their current business model within the next five years.

E. Influence of the cloud on the service provided by Avanade

This chapter gives an overview on the impact that the introduction of the cloud services will have on the different services provided by Avanade. We will use the BCG matrix (Hedley, 1977) to identify position of each of the services provided by Avanade.

Because cloud services are changing the current use of information systems, the services requested by the clients of Avanade is changing too. A schematically representation of the state of the current services provided by Avanade is given in (Table 3 - Current services plotted on the BCG Matrix) followed by the possible shift of the services within the next five years.

< M arke t G row th ---> <--- Market share --->

Question Mark Stars

 Provide business visions

 Work design

 IT without bounderies

 Data and analytics

 ERP

 Manage services

Dogs Cash cows

 Collaboration

 Application development

 CRM

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 Application development: The assumption is that this service will remain, even with the introduction of the cloud. Companies will always want to be assisted when creating innovating software. These companies will have the need to use technical professionals. What will change is the expectation of the customer. Customers will expect that

consultants have more business knowledge so they better can assist in creating value for their company. This can be accommodated by managers who can translate the business value of the customer to technical aspects. This means that in this service the contact person to client should have in-depth knowledge about the industry the company is competing in and is able to discuss not only the technical choices but also the business impact. Once the strategy and guidelines are determined for a new innovation, the

consultant or manager should be able to address the risks and possibilities that arise in the market to the client. Therefor we state that the market growth for this service line is quite high.

 Collaboration: As every company needs to work together, the estimation is that this service will be commoditized. These services will be replaced by services that are delivered by cloud services. Companies will be able to subscribe to a service providing collaboration software such as Office365, Skype for business and email. When services are created using the cloud and different companies will subscribe to these services the cost to host these services will go done. Expected is that companies will be tempted to choose these cloud service even when these general services do not fulfill all the needs expected from the collaboration software purely based on price. Because of these changes we believe that the market will shrink for this service for IT consultancy companies and within five years it will not even be worth it compete in this market.

 CRM: Every company has the need to do customer relationship management. Therefor these services will be commoditized as well. The same argument that has been made for collaboration applies here as well. To conclude the market will shrink and the question is do you want to compete for this market share with the new players (cloud service

providers?)

 Data and analytics: In this market we believe that Avanade could assist their customers to create value by developing new innovating software. This market is very new because

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the cloud providers created the opportunity to store an unlimited amount of data. Because of potential unlimited storage in the cloud the data is stored more homogeneous and increases the access to the data. Combining data from different systems can lead to create new information that can be used to create value for a company. In academic literature this is called the internet of things. “The Internet of Things (IoT) is a scenario in which objects, animals or people are provided with the unique ability to transfer data over a network without requiring human-to-human or human-to-computer interaction.” (Rouse, 2014) For example a company who delivers electricity to houses could use smart meters sending information about the status of some parameters and therefore can deliver predictions such as the demand needed, when a meter needs replacement, when to do maintenance on the network, and so on.

 ERP: The requirements and needs for ERP systems are different in every industry because of the type of resources that are used. The expectation is that, based on the type of industry, different services will be provided by service providers. SAP has been dominating this market since the 1980’s. But although the system in its core is very robust it is targeted for big companies that do not change too much in its operations. Expected is that the cloud will provide the opportunity for new business to start up rapidly and that the growth of these companies will be different and that different ERP systems are needed. The question than remains will SAP still be the preferred supplier? Flexibility and integration will be the key for the new ERP systems.

 Infrastructure services: A company grows or shrinks this is a given. A company can grow by hiring or firing people or by acquisitions, or by selling a part of a company. When a company expands by acquisitions the information systems used within the two companies must be merged. Infrastructure services will keep assisting companies with this request. But when more and more companies are going to use cloud services the maintenance need of internal infrastructure needed for software will diminish. Expected is that software will be created to make these transitions more easily and that the

technical knowhow on how to do this is shielded again.

 Managed services: Managed services provide services to maintain the information systems that are operational. Avanade could grow their services they are offering by not

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only assisting in keeping information systems up and running but provide a service for a particular business issue. This implies that the manage services needs to be restructured and that a part of the business model of Avanade need to be changed.

When analyzing the different services provided by Avanade we noticed that the services provided by the cloud will have a big impact. Below the same graphical representation of the services is done but now filled with the expectations for the year 2020.

< M arke t G row th ---> <--- Market share --->

Question Mark Stars

 Develop software for services

 Provide business visions

 Assist customers in digital transformations

 IT without boundaries

 Work redesign

Dogs Cash cows

 CRM

 Collaboration

 ERP

 Application development

 Manage services

 Data and analytics

 Transformation to cloud services

TABLE 4-ESTIMATION OF THE SERVICES PROVIDE BY AVANADE PLOTTED TO THE BCG MATRIX (2020)

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F. Recommendations

Looking at table 7, it is clear that the cloud will have a serious impact on the business of

Avanade. Taking into account that Avanade has to grow its business with each year to cope with the increasing salary cost (which is the main part of the cost for a service industry) the challenge is big.

In such a fast changing environment it is important to receive the information on the customer behavior and the evolution of the cloud services as soon as possible. Therefore it is advisable to strengthen the power of three and put Accenture even more close to the bigger customers and to have direct information lines to Microsoft.

During the change the IT market is going through by the introduction of the cloud, Avanade can assist their customers to enable them to transform the client information systems from locally hosted systems to services based on cloud technology. During this time we recommend Avanade to use their connections with their customers to start positioning themselves not only by having the technical capabilities but also the knowhow how to make the customer business more successful. To be able to collect the information needed, the consultants who are in contact with the clients of Avanade on a daily base will be required to have more business knowledge. Therefore we recommend that Avanade will invest in training materials to increase the business knowledge of their consultants in the next five years.

The estimation is that by 2020 two cash cows will become dogs and after 2020 these services will need to be liquidated. The “manage services’ and the “data and analytics” could become new cash cows but for those services more business knowledge is needed from consultants as the consultants must be able to assist the companies in creating added value for them. New ideas and services must replace the traditional way of the assisting clients. This has to be worked out in a change management program.

In order to take full advantage of the cloud strategy of Microsoft, we recommend Avanade to create a strategy based on two axes: (1) Focus on big accounts with a high added value programs

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for the clients (2) Deliver services based on industry’s needs. As this is a major shift in focus, it will be expected that some reorganizations within the company will be needed. Some service lines will disappear inside the company and new service lines will be created.

To ensure Avanade that can continue to grow Avanade needs to look at the percentages of revenue that the current cash cows are generating and look inside the market of the new services to replace those existing cash cows with new ones.

V. Conclusion

The introduction of the cloud leads to the need to rethink the value of IT departments as we currently know them. This paper focused on answering the following research question: What is the impact of the services provided by cloud providers on the strategy of consultancy companies? How can consultancy firms such as Avanade take advantage of this new technology? This paper used frameworks from the strategy field that are implemented to information systems to provide a clear view that cloud services are destructive for the current business model of IT consultancy companies. The cloud itself presents new possibilities for IT consultancy companies but these IT consultancy companies have to wake up and realize that the time to implement a change

management program is now. The cloud implementation is happing now and it is irreversible because of the cost aspect. Expected is that within five years the world of IT consultancy as we know it will be changed. We recommend every IT consultancy company to do inside-out view to capture its core competences and create a new business strategy for the blue ocean (Kim, W. C., & Mauborgne, R., 2015) that the cloud creates. There are two axes that IT consultancy firms can focus on: (1) create their own services, (2) provide technology knowhow to create innovations. Both items have their own challenges in implementing the strategy to create value for their customers and a good IT consultancy company will try to do both for the next five years and select the strategy that fits within their company after five years.

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References

Books and Articles

Barney, J. B. (1995). ‘Looking inside for competitive advantage’, Academy of Management Executive, 9(4), pp. 48–61.

Porter, M. E., & Millar, V. E. (1985). How information gives you competitive advantage.

Porter, M. E. (2008). The five competitive forces that shape strategy.

Mell, P., & Grance, T. (2011). The NIST definition of cloud computing.

Hedley, B. (1977). Strategy and the “business portfolio”. Long range planning,10(1), 9-15.

Heier, H., Borgman, H. P., & Bahli, B. (2012, January). Cloudrise: Opportunities and Challenges for IT Governance at the Dawn of Cloud Computing. In System Science (HICSS), 2012 45th Hawaii International Conference on (pp. 4982-4991). IEEE.

Kim, W. C., & Mauborgne, R. (2015). Blue Ocean Strategy, Expanded Edition: How to Create Uncontested Market Space and Make the Competition Irrelevant. Harvard Business Review Press.

Internet

Avanade corporate website: http://www.avanade.com/en/about-avanade , last visited 31-08-2015

Joshi, G. (2012). Cloudtweaks: Cloud Computing: Leading from the Front – Part 1:

http://cloudtweaks.com/2012/03/cloud-computing-leading-from-the-front-part-1/ , last visited 31-08-2015

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Rouse, M. (2014). techtarget.com: http://whatis.techtarget.com/definition/Internet-of-Things, last visited 31-08-2015

News site of Microsoft. (2000). https://news.microsoft.com/speeches/satya-nadella-mobile-first-cloud-first-press-briefing/ last visited 31-08-2015

White, C. (2013, 12). Cloud computing timeline illustrates cloud's past, predicts its future: http://searchcloudcomputing.techtarget.com/feature/Cloud-computing-timeline-illustrates-clouds-past-predicts-its-future last visited 31-08-2015

Forbes, (2015). Roundup Of Cloud Computing Forecasts And Market Estimates:

http://www.forbes.com/sites/louiscolumbus/2015/01/24/roundup-of-cloud-computing-forecasts-and-market-estimates-2015/ last visited 31-08-2015

(Image) Cloud image: http://www.enterthecloud.it/tips/storage-in-the-cloud-come-fare-con-cyberduck/ downloaded on 23-8-2015 (Cover page).

(Image) Market growth of the cloud:

http://www.forbes.com/sites/louiscolumbus/2015/01/24/roundup-of-cloud-computing-forecasts-and-market-estimates-2015/ downloaded on 23-8-2015 (Exhibit 1)

(Image) Service model image:

http://www.rackspace.com/knowledge_center/whitepaper/understanding-the-cloud-computing-stack-saas-paas-iaas downloaded on 23-8-2015 (Exhibit 5)

(Image) Deployment models of the cloud https://technet.microsoft.com/en-us/magazine/hh509051.aspx downloaded on 23-8-2015 (Exhibit 6)

(Image) Value chain of porter:

http://www.managementexchange.com/sites/default/files/media/posts/images/PorterValueChain Model.png downloaded on 23-8-2015 (Chapter II A)

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(Image) Five force model of porter: http://masonmyers.com/five-forces-michael-porter-business-fundamentals/ downloaded on 23-8-2015 (Chapter II B)

(Image) RBV: http://www.strategicmanagementinsight.com/topics/resource-based-view.html downloaded on 23-8-2014 (Chapter II C)

(Image) BCG Matrix: https://www.quora.com/What-is-a-BCG-matrix downloaded on 28-8-2015 (Chapter II D)

Figures

Figure 1 - The value chain of by porter ... 8

Figure 2 - five force model of Porter ... 9

Figure 3 - Resource based view by Barney ... 10

Figure 4 - Boston consultancy matrix ... 11

Figure 5 - Market growth of the public cloud ... 33

Figure 6 –Time line of the cloud... 34

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Tables

Table 1- Examples of information systems based on the value chain model ... 13

Table 2 - Services provided by Avanade ... 21

Table 3 - Current services plotted on the BCG Matrix (2014) ... 23

Table 4 - Estimation of the services provide by Avanade plotted to the BCG matrix (2020) ... 26

Table 5 - Five essential Characteristics of a cloud ... 36

Table 6 - Three services models of the cloud ... 38

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Exhibit 1: Market growth of the public cloud

The image below show the expected market growth until 2020. This based on the research that Forbes has done. (Forbes, 2015). As we can see in image the growth for services inside the cloud have risen from $5 billion dollars to $78 billion. Expected that this exponential growth will continue and that the market for cloud services will almost double to $132 billion in the next five years.

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Exhibit 2: The history of the cloud

The cloud is still very young. Based on the research of (White, 2013) a timeline visualizing the evolution of the cloud is created. (White, 2013). The idea of the cloud emerged between 2000 and 2005 after the dot-com bubble burst. In 2006 the first mover in this new market was Amazon. Somewhere between 2008 and 2009 the cloud implementation started to pick up momentum and by 2012 other major companies had joined the market, such as IBM, Microsoft, Google and Apple.

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Exhibit 3: Survey of the uses of the cloud in 2012 to 2013

At the end of the research in the article of (White, 2013) a summary of the usage of the cloud is given based on a survey. From this survey we can conclude that companies are just starting to transfer their information systems from locally hosted to cloud services.

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Exhibit 4: The five essential characteristics of the cloud are

(Mell & Grance, 2011)

Essentials Explanation

On-demand self-service

A consumer can without human interference upgrade or downgrade the storage and computing time needed.

Broad network access

The services can be accessed by all kind of clients using the internet.

Resource pooling The services provide arrange resources (computing power, storage, latencies, backups) management.

Rapid elasticity The service provides a scalable model. The customer does not need to think about the scaling of the hardware.

Measured services

The services provide an online way without human interference on the cost of the services that is being provided.

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Exhibit 5: The three services models of the cloud are (Mell &

Grance, 2011)

Service models Software as a Service (SaaS)

A consumer can use software that is hosted inside the cloud. The consumer does not have the knowledge about the software, hardware and so on. The consumer can only change configuration settings provided by the application itself.

Examples:

 Webmail

 Document management systems

 Template websites.

 CRM online

Platform as a Service (Paas)

Provide the consumers quickly with environments to assist in creating software.

Examples:

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 Complex 2.0 websites that provides interactions between customers of a company and a company.

Infrastructure as Service (IaaS)

Allows the consumer to access the infrastructure that is not locally set and maintained. There is still an abstraction layer between effective servers below and the virtualization of these components.

Examples:

 virtual server space

 network connections

 IP addresses

 load balancers

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Exhibit 6: The four deployment models of the cloud are

(Mell & Grance, 2011)

Deployment models

Private cloud The cloud is created for or by a single organization and solely used one company.

Community cloud The cloud is created for a group of organizations that share the same cloud.

Public cloud The cloud is used by all kind of different organizations and they share the resources that this cloud provides.

Hybrid cloud A combination between two or three of the models stated above.

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Exhibit 7: Advantages of the cloud

 The company pays only for the effective usage and not for the potential needed usage. A company does not have to think about the potential growth of the company and therefore to have extra capacity available for when it is needed. For example when a company is hosting a website it does not have to take in account that in case of a calamity more people will visit the website when using cloud services as the service will scale automatically.

 When creating a workstation in the cloud it means that the workstation is virtualized. A virtualized workstation could easily be copied and therefore the cost and time of installing a computer of laptop for each new employee will be reduced. By using the computing power within the cloud the hardware requirements needed for a laptop will be reduced as well what saves cost and time. Using the infrastructure of the cloud which automatically can scale reduces the need to estimate the growth of your company as well.

 When a company creates software in house, this company needs to have a development street to be able to maintain the current website and to provide new functionalities to the software. By using the virtualizing power of the cloud to create a development street and when the work is done, the environments can be shut down and restarted them when needed.

 The billing structure used by the cloud providers makes it easy to pass the cost directly to (internal or external) customers.

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Exhibit 8: Disadvantages of the cloud

The cloud can have some disadvantages as well. Below you can find some examples:

 When using services from the cloud a good and stable connection with the internet is needed. When the internet is down all the services are not available anymore. Even though the cloud providers will support a very high availability rate, the local network that used inside a company can still breakdown or be very slow.

 The hosting company which runs your software and data should be trusted.

Sometimes it is not even allowed by law to put data inside cloud. For example in the financial sector it is not allowed to store customer and or financial data outside the country.

 Changing from cloud provider can be expensive because this means you have redeploy your software and transfer the data to a new cloud provider.

The impact of the cloud : on the strategy of IT consultancy companies