As the global economy moves from a pandemic footing to a more future-focused endemic one, many organizations are looking for opportunities to become more nimble and efficient by offloading business processes to the cloud.1
In response, cloud giants, software vendors, and system integrators are developing an array of cloud-based solutions, accelerators, and APIs that are preconfigured to support common use cases within industry verticals.2 These solutions are designed specifically for easy adoption, and can be built upon to create digital differentiation.
Whatever mix of à la carte applications, tools, or services users adopt from these offerings, cloud becomes the fabric stitching them together into powerful business process solutions. For example, a global automobile manufacturer has partnered with cloud vendors to develop cloud-based connected car application development services for the transportation industry. The platform features industry-specific solutions along with IoT, machine learning, analytics, and compute services that manufacturers can leverage to develop connectivity layers for their vehicles.3
The health care industry initially deployed cloud processes for managing back-office data. Regulatory compliance with the Health Insurance Portability and Accountability Act of 1996 (HIPAA) drove the next phase of this sector’s cloud journey as health care organizations began managing patient data in the cloud. Today, pioneering health care providers are exploring ways to use cloud-based HIPAA models to improve medical treatments.4
Over the next 18 to 24 months, we expect to see a growing number of organizations across market sectors begin exploring ways that industry clouds can help them meet unique vertical needs. Indeed, based on Deloitte analysis, we project that the value of the industry cloud market could reach US$640 billion within the next five years.5
Clearly, the Cloud goes vertical trend is gaining momentum, so the time to begin exploring its possibilities for your organization is now. You can start by performing an assessment of your business process ecosystem to determine which processes you would consider cloud-sourcing from external vendors, and the pros and cons of doing so.
As a critical part of this assessment, try to gauge how well current processes support your short- and long-term business strategies, and where there is room for improvement. Moreover, keep in mind that the rapidly growing menu of cloud-based capabilities could spark new business models and out-of-the-box possibilities.
Finally, the industry cloud trend presents a long-overdue opportunity to restructure IT. As companies begin outsourcing IT functions and business processes that provide no competitive advantage, they can redirect their efforts and investments to “differentiating” systems and services that do, while simultaneously creating a lasting capacity to change.
This assessment doesn’t need to be some monolithic, two-year project. Indeed, it can be done in bite-sized increments that add efficiency and effectiveness to most processes along the way. At the same time, you can begin refocusing talent and resources toward the differentiated processes that deliver competitive advantage.
From infrastructure to industry verticals
The business and technology needs currently driving the Cloud goes vertical trend are not new. Starting in the 2000s, organizations with similar compliance, business process, or data management needs began adopting cloud-based software. At roughly the same time, CIOs began “lifting and shifting” some on-premises systems to public clouds in order to lower costs and gain efficiencies.
Today, the twin approaches of sharing software that meets common needs and letting someone else run your infrastructure continue to inform the Cloud goes vertical trend. What’s new is that we’ve moved from procuring generic functions and libraries to the digitization and availability of actual industry-specific business processes. Moreover, organizations increasingly expect cloud vendors to create “common core” solutions that address shared needs across industries and ecosystems. Hence, cloud and software vendors now offer an expansive menu of industry-specific, modular business processes available through APIs that can be accessed at the push of a button. For example, using APIs, engineers and system architects can connect targeted smart factory systems together in a shared cloud network. Surgical capabilities like these represent a quantum leap from FedRAMP-esque, compliance-based offerings just a few years ago.
Against this background, we see this trend unfolding in the following dimensions:
Hyperscalers climb the stack
The “big three” cloud services providers—Amazon Web Services (AWS), Google Cloud Platform, and Microsoft Azure—offer cloud-based industry enclaves that automate business processes that are unique to sectors like health care, manufacturing, automotive, retail, and media, among others.
They began by creating infrastructure-as-a-service (IaaS) capabilities, which eventually elevated to platforms-as-a-service (PaaS). But they haven’t stopped there. Hyperscalers have continued to climb the technology stack, methodically automating ever-higher order processes to create industry-optimized platforms that are, in some cases, more functionally robust and efficient than the on-premises solutions businesses are currently running. For example, some in the hospitality industry now utilize cloud-based reservations and customer management systems. Likewise, the manufacturing sector takes advantage of cloud-sourced predictive maintenance solutions.
Organizations will find much more than hyperscaler-developed products and services in industry clouds. Indeed, there is a growing ecosystem of sector-specific business capabilities from established vendors such as MuleSoft, Oracle, Salesforce, SAP, ServiceNow as well as startup and open-source projects.6
Focus on differentiation
Chances are you have some home-grown code that you should hang on to. You have invested time and budget developing these capabilities that—thanks to your good planning and execution—deliver competitive advantage. Think of them as keys for differentiating your organization in the market. Say you are a retailer and you’ve spent considerable time customizing your in-store inventory management engine. The C-suite (and the market) recognize your inventory capability as a best-in-class superpower. Just because your cloud vendor might offer an inventory API doesn’t mean you should automatically use it. You own the customized code and it contributes heavily to competitive differentiation. Why not keep it? You can certainly run it in the cloud, but the important thing is that it’s your IP, and it meets your unique needs in ways that off-the-shelf offerings cannot.
It’s important to assess your options before you act. The spectrum of vertical-focused solutions available today is more sophisticated and granular than it was even a couple of years ago. Think about your existing ability to execute a process. If your current capability is better than what’s available off the shelf, then keep your own logic. But if you are competing against digital natives and your process—and the capabilities that support it— are no longer that special, consider using an industry API.
For many technology and business leaders, participating in the Cloud goes vertical trend will require a reckoning of sorts. Together, leaders must determine where the company wins in the marketplace, and which technologies make those wins possible. If, for example, you win through nontraditional customer service, then invest heavily in those in-house analytic capabilities; these capabilities deliver competitive differentiation and enable new innovation and revenue generating opportunities. Guard them jealously. By contrast, everything that doesn’t separate you in the market becomes commodities and can be provisioned as business services from cloud or software providers.
As you explore the opportunities that the Cloud goes vertical trend may offer, consider taking the following steps, some of which may be long overdue:
- Business and IT leaders should work together to determine where the company wins today and in the future. For this effort to succeed, the business must understand technology more deeply. Likewise, IT must understand business strategy and the critical role that technology plays in advancing it. Only then can both teams identify the technologies that are critical to achieving wins.
- Create an inventory of business processes and the cloud-based offerings that support them.
- Identify which differentiating processes and enabling technologies to keep in-house. Likewise, identify areas in your business that could benefit from the emerging suite of technology offerings enabled by the cloud.
- Work with cloud service providers, software vendors, and integrators to plan the next phase of your cloud journey.