strategy+business: Corporate Strategies and News Articles on Global Business, Management, Competition and Marketing
 / Winter 2016 / Issue 85

Serendipity in the Cloud

Matt Palmquist

Matt Palmquist is a freelance business journalist based in Oakland, Calif.

 

Bottom Line: Shifting from physical to virtual data platforms can reduce companies’ costs and improve sustainability.

As managers face increasing pressure from stakeholders to make supply chains eco-friendly, companies are on the hunt for new and inexpensive tools, partners, or processes that can improve the sustainability of their operations. But according to a new study, one solution may already exist: Cloud computing could improve supply chains’ environmental performance while also cutting costs.

When firms move their data from in-house servers to the cloud, they can save money on maintaining IT infrastructure and storage. Hosting applications, information, and networks on the cloud, typically through a third-party service at a much lower cost than a physical setup, also allows companies to quickly analyze and disseminate data, loop in partners, and scale their technology needs to accommodate changing budget and business requirements.

But little empirical evidence exists of cloud computing’s impact on a firm’s economic and environmental record. Aiming to fill the gap, the authors surveyed 247 CEOs, managers, and IT specialists at U.S.-based firms about the extent to which they used cloud computing. The companies operate in industries up and down the supply chain, including manufacturing, retail, and distribution. The authors interviewed employees in multiple levels of the companies to get feedback on both big-picture financial returns and the hands-on experience of using cloud computing.

Because the costs of environmental initiatives are often cited as the biggest impediment to implementation, the authors sought to determine whether firms could balance the finances relating to their sustainability efforts via the cloud. They found that firms’ use of the cloud was associated with sales growth, operating earnings, and improved return on assets and investments.

On the sustainability front, companies’ application of the cloud also typically led to reduced costs — firms spent less on materials, waste treatment, and disposal, and consumed less energy. The authors assessed environmental performance and found that cloud computing helped firms comply with regulations designed to reduce solid waste output, use fewer hazardous and toxic materials, and cut down on resource consumption.

The cloud represents something of a hidden competitive advantage for firms willing to make the jump to virtual.

The reason, the authors posit, is that cloud computing slashes firms’ transaction costs throughout the supply chain, replacing cumbersome physical infrastructure and outdated interaction capabilities. Employees from multiple partners can access and share information via the cloud, and the authors found some evidence of increased cooperation among collaborating firms. Namely, coworkers reported an improvement in their ability to align goals and incentives, divvy up resources, and share and create knowledge.

The authors insist they’ve provided empirical proof that the cloud represents something of a hidden competitive advantage and that cloud computing can “effectively balance both economic and environmental performance.”

Source:  “Cloud Computing and Its Impact on Economic and Environmental Performance: A Transaction Cost Economics Perspective,” by Dara G. Schniederjans and Douglas N. Hales, Decision Support Systems, June 2016, vol. 86

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Serendipity in the Cloud