Cloud Goes Vertical: From Infrastructure To Industry-Specific Verticals

Cloud Goes Vertical: From Infrastructure To Industry-Specific Verticals
Cloud Goes Vertical: From Infrastructure To Industry-Specific Verticals

Industry-specific cloud solutions can enable organizations to automate manual tasks and shift their focus to competitive differentiation. Cloud and software vendors now offer vertical-specific solutions that modernize legacy processes and jump-start innovation, freeing organizations to focus resources on competitive differentiation.

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.

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. 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.

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.

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.

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.

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.

Modern Engineering

Even as “buy” evolves into “assemble,” there is a need for a different kind of “build.” We’re not talking about armies of developers working on multiyear projects to build behemoth custom systems. Rather, think of modern software engineering with small teams working with cloud services, platforms, and tools to integrate and deploy quickly.

A big part of this new equation is full stack teams working closely together on a set of well-defined outcomes. Leading organizations embrace “pods” or “two pizza-box teams” in which cloud engineers, UX designers, data scientists, quality assurance, and product managers blur the lines between disciplines as they work together. Team members grow and learn as they lean in on whatever the current sprint requires. Importantly, the teams are collectively focused on solving business problems and shaping the road map of whatever they are working on. This represents a welcome change from simply cranking through solution requirements removed from the “why” and the “so what”.

The other key is empowerment. Modern engineers expect autonomy, from a purpose lens (having the choice to work on something they believe in); to a tools lens (choosing what gear, platforms, open source libraries they use to practice their craft); to a personal lens (dress code, hours, remote work arrangement).

When technology leaders from traditional organizations visit high-tech startups, they often take away the wrong lesson. The reason engineering teams at digital native companies often thrive is not because of foosball tables, stocked fridges, or silly perks. It’s because these young companies appreciate engineering as a core creative discipline. Moreover, they respect engineers and give them the authority they need to succeed. Of course guardrails and guidelines are still necessary, especially in areas of security, compliance, and legal IP protection. But they are deployed within the larger context of elevating modern engineering as a key part of the organization’s strategy and future culture.

Build The Capacity For Change

In a time of disruption and rapid-fire innovation, access to best-in-class solutions or even experimental tools gives organizations the software options they need to connect all the dots in their multifaceted digital transformation strategies. This access hinges, however, on a capacity to change.

Consider this: Clouds tailored to the needs of specific industry verticals will evolve continuously as innovative solutions and services emerge. To maintain their competitive differentiation, organizations will need to embrace disruption, and stay on top of the latest industry cloud offerings. In a climate of rapid-fire change, the future is always approaching fast. Cloud technology can help organizations create not only the capacity to change, but the agility to do so continuously. The fewer systems and processes you have in-house today, the fewer you will have to manage, upgrade, and refresh tomorrow. Most companies are already in the cloud to some degree. If you are, think of the industry cloud trend as the next leg of your cloud journey, one that riffs on the cloud’s original promise of sharing resources to solve problems affordably and at scale.

The Way Forward

The good news is that fully embracing the Cloud goes vertical trend doesn’t require some big bang effort. Indeed, it can be done in small, thoughtful steps that help you side-step complicated legacy app renewals or disruptive core modernization initiatives. And with each step, your systems become more efficient and effective.

My Take

Marijan Nedic, Vice President, Head Of It Business Solutions, SAP

I believe what separates you from your competitors is not the majority of your operations; it’s the 5-to-10% of your operations that are unique. The emergence of industry clouds – packaged solutions of common applications and configurations used across a given vertical – is helping businesses spend less time setting up the table-stakes functionality necessary for running their businesses and more time on the impactful areas that set them apart. At SAP, our goal is to create industry clouds that enable our clients to meet most needs out of the box, plug easily into partner solutions, and manage unique differentiators in a consolidated platform.

Whether you run a hospital, factory, car Rental Company, or any other type of enterprise, odds are many of your processes and operations are nearly identical to those of your competitors. Therefore, the industry predefines most of your problem space. And most of that problem space has already been solved.

As such, any industry cloud worth its salt will have a few common features. First, the industry cloud must provide most of the functionality needed for the industry out of the box, especially the commodity functions. Second, it must be an open platform that enables customers and partners to develop innovative solutions. The platform needs to make it easy to connect and manage these solutions. Third, it should allow customers to ramp up or scale down capacity and processes according to demand. Finally, it should enable easy access to other business and technology services. For example, all the major cloud services today include common tools straight out of the box. While natural language processing (NLP) is now a common tool, the question is how to integrate NLP into your business. Across all these features, your industry cloud should support your broader ecosystem.

I recently visited a manufacturing client that utilizes agile production methods to respond to both large and small customer orders. It’s a very profitable business but it requires frequent reconfiguration of production lines. To optimize equipment performance, machine learning (ML) models analyze order data to determine necessary machine configurations and the optimal sequence for filling orders. The process works exquisitely, but it took a massive effort from the manufacturer’s digital team to build it all by hand.

Instead, these capabilities can be derived from a single industry cloud. Offloading much of the building and maintenance of these processes can give data scientists more time to develop ML models that help the factory respond more quickly to orders. If machine vision is combined with ML models, quality control teams can inspect a greater percentage of goods coming off the line. Spending more time on activities that really matter helps manufacturers scale their operations more rapidly than if they build functionality manually. These are the kinds of things that set a manufacturer apart.

With this combination of functionality in place, businesses can become more agile. When their main operational platform comes configured for the needs of a typical business in their industry, they can focus their energies on the portion of their operations that sets them apart. They can get straight to a digital representation of their business, their network of partners, their network of suppliers, their machines. Ultimately, it’s about having the agility to develop the innovations that can truly make your organization unique.

originally posted on deloitte.com by Ranjit Bawa, Brian Campbell, Mike Kavis and Nicholas Merizzi

About Authors:

Ranjit Bawa: Principal | US Cloud Leader
As Deloitte Consulting LLP’s US Cloud leader, Ranjit brings the perspective that some of the most powerful opportunities for disruption come when new technology solutions enable the transformation of core operational processes and financial models. It’s a perspective sharpened over the course of nearly two decades spent designing solutions for some of the world’s most technology-centered enterprises, including leading global financial institutions where technology is the foundation of the service delivery model. Ranjit’s educational background – he has degrees in electrical engineering and finance – gives him a rounded understanding of the interrelated dynamics of technology and economics. His early career in aircraft engineering operations steeped him in an environment where every decision impacts a complex, mission-critical system. Today he applies that perspective to help organizations reimagine themselves at every step along the cloud journey.

Brian Campbell: Principal | Deloitte Consulting LLP
Brian is a principal in Deloitte Consulting’s Strategy practice. Brian specializes in growth strategy, go-to-market strategy, business model transformation, and digital transformation with a focus on high-tech. He spends a significant amount of his time working with the cloud hyperscalers and other technology leaders to drive growth, innovation, and both top and bottom line improvement for clients across industries. He co-leads Deloitte’s Technology-Powered Business Transformation offering.  Brian’s functional experience spans strategy, sales, marketing, finance, IT, HR, and operations. When he’s not working, Brian loves to ski, bike, and play golf. A proud Canadian, he is also an avid traveler and visits family and friends all over the globe whenever he gets the chance. His greatest passion is being a Dad to his two young kids and husband to wife Ally.

Mike Kavis: Chief Cloud Architect
Mike is the chief cloud architect in Deloitte Consulting LLP’s Cloud practice, responsible for helping clients implement cloud strategy and architecture to drive digital transformation. Beyond his technology experience, Mike brings an insightful understanding of how to address the organizational change, process improvement, and talent management challenges associated with digital transformation. Mike brings more than 30 years of experience in software development and architecture to his role. Most recently, he was a principal architect with Cloud Technology Partners. A pioneer in cloud computing, Mike led a team that built the world’s first high-speed transaction network in Amazon’s public cloud and won the 2010 AWS Global Startup Challenge. He has written extensively about cloud technologies and the Internet of Things. Mike earned a bachelor’s degree from Rochester Institute of Technology and masters’ degrees in business and information systems from Colorado Technical University.

Nicholas Merizzi: Principal | Cloud Strategy
A principal in the Deloitte Consulting LLP’s Cloud Strategy offering, Nicholas works with global organizations to help them achieve their cloud strategies at enterprise scale. He is skilled at helping clients to map a path for transformation, modernize complex distributed systems, and explore emerging technologies that enable business strategies. Nicholas brings more than 15 years of experience in technology across the financial services industry to his position. Before joining Deloitte, Nicholas held technical leadership positions at a global technology company and worked as an engineer for a major bank. He holds both an undergraduate and graduate degree in computer science as well as an MBA focused on strategy and finance. He now leverages this combined experience with cloud at the epicenter to help clients push through new frontiers and re-imagine business opportunities.