While AWS and Azure are recognized as the most prominent players in the public cloud wars, IBM has taken a solid foothold in the public cloud space. AWS and Azure have created environments for companies to build scalable, robust infrastructure. IBM’s recent tactic has been to create an environment for companies to do much more—participate in an industry ecosystem.
In creating the financial services ecosystem within their cloud environment, IBM has established something that the other cloud providers have yet to make—context. Each industry has its own set of nuances, challenges, and forces that act upon it. Those issues impact every company that participates in that industry. No single company is immune. But through creating that industry context, IBM has also given ISVs a motivation for building their capabilities in the IBM Cloud.
The benefit of an ecosystem
IBM has a triple win. IBM established an ecosystem that banks are motivated to adopt due to security and regulatory functionality. ISVs are encouraged to offer products in the ecosystem due to the number of customers in that ecosystem. With many ISVs providing services in the ecosystem, more financial services could join the ecosystem. Soon the IBM Cloud for Financial Services could benefit from a network effect of having a large footprint of clients.
The critical aspect of IBM’s cloud offering is that they have created an environment where interdependent components of, in this case, the financial services industry, can work together. By deploying this ecosystem on a cloud computing platform, IBM has allowed this interdependent behavior to be consumed on a ‘pay-as-you-go’ basis.
The IBM Financial Services ecosystem must attract a wide variety of stakeholders to be successful. The foundation of the ecosystem is a set of established companies. However, just attracting established companies is not sufficient. The ecosystem must also possess a circle of life. The circle of life, in this case, is the creation of new businesses that provide updated functionality to the industry. Therefore, the ecosystem members must include universities, the developer community, accelerators, and startup companies. Each member of the ecosystem becomes reliant upon the ecosystem for its continued viability.
Universities need platforms for teaching their students and research. Developer communities need application programming interfaces. Accelerators need tools and capabilities. To sell their products, startup companies need a market. Established companies need new functionality provided by startups, market opportunities for growth, and workers from the universities and developer communities.
Why cloud computing isn’t enough
The strength of cloud computing is in its flexibility. Cloud computing allows a company to scale up and scale down its resources as necessary based upon traffic demand. Handling traffic demand is a technology problem. It isn’t a business problem.
When Harvard Business School professor Michael Porter presented the value chain concept, he listed technology as a supporting activity to the primary activities. The primary activities are inbound and outbound logistics, operations, marketing and sales, and service. Companies participating in an industry ecosystem have access to the external processes that drive growth in that industry. Companies participating in an industry ecosystem also have access to the tools, customized for that ecosystem, that increase business productivity internal to the company.
When a company migrates their technical infrastructure to the cloud, they gain quite a few efficiencies. However, the basic process largely remains the same. The technical service owner identifies the need for a new server, they request a new server, they request software be installed on that server. Then the server gets introduced to the production environment. A business can introduce a cloud-based server into production in a fraction of its time to introduce a server into a legacy data center.
It is a locally optimized solution.
However, compared to an ecosystem, just leveraging cloud computing will likely not be enough to compete—especially when all industry participants migrate to the cloud. As an example, a business can shorten a process’ cycle time through automation. The highest level of improvement possible with automating a given function is a 100% cycle time reduction. However, by reengineering the entire process, a business can reduce cycle time by orders of magnitude.
Ecosystems provide that orders of magnitude impact where cloud computing in itself does not.
What to watch for
Companies are working toward maturing their enterprise architectures to increase their ability to execute on their strategy. To date, companies have been focused internally on that maturation process. However, there will come a time when companies will need to turn their focus externally. The goal of a company looking beyond itself will be to have seamless integration with external business partners. With that seamless integration, the core company will have the ability to swap in and out entire companies that would comprise a virtual corporation.
That level of integration is only possible when an ecosystem is built upon a common object and interaction model. If that comes to pass, the amount of flexibility that established companies will possess would be outstanding. Companies could introduce new functionality quickly. Startup companies would have fewer barriers to marketing and selling their products. The introduction of innovation could be constant.
Disclaimer: While not an employee of IBM, the author is a 2020 IBM Cloud Champion.