Filed under: Cloud Computing July 20, 2009

(The Cloud Apps section has been removed from the website)
This site’s Cloud Apps section uses Michael Porter’s Value Chain1 model as a map of generic business functions. This was used because of its convenience and was not intended to be a business strategy. Its primary usefulness in this context is that the activities are fairly well known. If you are looking for a Sales & Marketing application, it should be obvious that Inbound Logistics will not have the answer.

However, in defense of the Value Chain, modern management theorists have not developed a better map. Porter introduced the Value Chain almost 25 years ago in 1985 in his book, “Competitive Advantage: Creating and Sustaining Superior Performance.” Many criticisms have been leveled at this work, but a critical reading tends to support his theories rather than debunk them.

The Value Chain is fine for categorizing software, but it is very high level when it comes to understanding your business. Porter developed models that synthesized complex business actualities into simpler segments so that industries and companies can be analyzed. This is great for economists and management theorists but less so for the rest of us.

Core Competence

One refinement of his model may be more relevant to everyday business people. Porter spoke of linkages between activities that lead to a company’s competitive advantage. Gary Hamel and C. K. Prahalad described a similar concept called “core competence” in their 1994 book, “Competing For The Future.2” They described core competence as a bundle of skills and technologies that make a disproportionate contribution to a customer perceived benefit.

An example is Honda’s ability to make great gasoline powered engines. They make everything from lawn mowers to cars. If it has an engine in it, Honda is probably in that market. They have developed a combination of skills and technologies that makes consistently great engines.

That is not to say that non-core competencies are unimportant. Honda has had to improve the styling of their products because other companies have raised the bar. But the disproportionate contribution to a customer perceived benefit is the quality of their engines and that is where most of their effort goes.

Cloud Computing

For most of us the core competencies and the associated skills and technologies are hard to identify. It is hard to nail down why Honda has such success. But, you must distinguish between your core and non-core competencies, even if it is just a gut feeling. This will drive your technology choices. Cloud Computing offers technology solutions in three ways.

As mentioned earlier, non-core does not mean unimportant. For example, sales activities may not be part of your core competency, but sales activities are vital to your business.  These activities need to be done as cost effectively as possible.  Cloud Computing can offer generic, low cost solutions out of the box to meet many non-core needs.

Secondly, a core competency may require refinement of a generic solution. Since Cloud Computing applications have to serve a broad audience, many are customizable. For example, Salesforce.com can be extended with new tables, fields, screen layouts, and workflows, as well as send and receive data from other applications.

Finally, your core competency may require a completely new solution. An example might be a machine shop that needs its customers to create a design using CAD software.3 A generic or even partially appropriate solution may not available. Even so, Cloud Computing can help by providing low cost infrastructure to host your solution, such as servers and operating systems. Before the Cloud, you would have to purchase, install, and maintain the infrastructure yourself before you could even begin to address the application logic to support your core competency. Bear in mind, however, this can still be an expensive proposition. Cloud computing just offers to lower some of your costs.

In summary, the Value Chain continues to provide value even though it is almost 25 years old. This site uses it to categorize Cloud Computing applications. However, the core competence concept is more appropriate in analyzing your business strategy. Cloud Computing then offers several possibilities to address your strategic needs.

1 Michael Porter, “Competitive Advantage: Creating and Sustaining Superior Performance,” New York: The Free Press, c. 1985
2 Hamel, Gary, and Prahalad, C. K., “Competing For The Future,” Boston: Harvard Business School Press, c. 1994
3 eMachineShop.com (http://www.emachineshop.com/). I have not used this service, but wow, what can’t you get on the Internet? This is a partial Cloud app because the CAD application must be installed on your PC. A full Cloud app would be strictly web based.

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