Strat. Change 23: 375–388 (2014) Published online in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/jsc.1983 RESEARCH ARTICLE Copyright © 2014 John Wiley & Sons, Ltd. Strategic Change: Briefngs in Entrepreneurial Finance Strategic Change DOI: 10.1002/jsc.1983 Servitization of the IT Industry: The Cloud Phenomenon 1 Nabil Sultan School of Business, Leadership and Enterprise, University Campus Sufolk, UK Cloud computing is increasingly emerging as a new model for servitizing the information technology (IT) industry. Many organizations, small and large, have embraced this new servitizing model for IT due to the advantages it promises in terms of fexible cost structure, scalability, and efciency. But cloud computing is also a disruptive innovation that is likely to require a fundamental and cultural shift in the way organizations (both service providers and receivers) view their IT products and infrastructures. Most interestingly, the cloud paradigm represents an approach to providing services that is diferent from the recently proposed service- based (as opposed to physical goods-based) solutions. Tis paper will attempt to highlight this issue and refect on the development of this emerging business model that has servitized the IT industry and its implications for organizations (both sellers and consumers) and the cultural dimension it brings. To describe the cloud computing phenomenon within the context of ‘servitiza- tion’ requires some understanding of the history and the literature that gave birth to the concept of servitization. Tis is important as it will provide some insights into the characteristics that make cloud computing fundamentally diferent from other servitized forms of business activity. Furthermore, the disruptive nature of cloud computing requires further investigation of this phenomenon within the context of the theory of disruptive innovation, as described by Clayton Chris- tensen and his colleagues. Tis approach will enable a greater understanding of the behavioral issues that disruptive innovations give rise to and will provide a basis for understanding the cultural implications of cloud computing. Moreover, a good understanding of the cloud phenomenon is required. Hence, some space is provided here for defning this new IT service model, the services it provides, and the current issues that it gives rise to (including those of a practical and cul- tural nature). Cloud computing is a disruptive innovation that has servitized the IT industry in an unprecedented way. Unlike other known service- based business models, the cloud is based on delivering a service that is originally a physical product. The cloud model promises many benefts but, as is the case with disruptive innovations, it is currently experiencing many performance issues such as security, interoperability, and reliability. Current evidence suggests that servitizing the IT industry through the cloud is likely to grow in popularity but will require a fundamental and cultural change in how organizations choose to take advantage of it. 1 JEL classifcation codes: O32, O33. T he emergence of cloud computing represents a new paradigm of servitization, where a physical product (software or hardware) is transformed into a service.