Internal IT modularity, firm size, and adoption of cloud computing

Cloud computing has achieved great commercial success to date, but its associated risks may impede firms from adopting it more effectively. This paper addresses the issue from the perspective of firms that use cloud computing and argues that the modularization of firms’ internal IT systems play an important role in enabling their adoption of cloud services. We performed detailed empirical analyses employing a dataset containing 457 firms classified as small and medium-sized enterprises (SMEs) as well as large enterprises. Our empirical results mainly suggest that internal IT modularity aimed for organization-wide, top-down strategic business transformation can help firms better adopt application-level cloud services regardless of their firm size. Bottom-up non-strategic internal IT modularity siloed in individual projects can foster the use of server-level cloud services for SMEs, but not for large enterprises. Our findings reveal support for the general prior understanding of (a) the negative effect of internal IT expenditure and cloud-based software’s quality and risk concerns on application-level cloud adoption, and (b) the positive effect of perceived benefits of cloud-based software on application-level cloud adoption for both SMEs and large enterprises. Finally, when SMEs develop more custom Web services in house, they tend to adopt fewer server-level cloud services externally. The theoretical development and empirical analysis of the effect of IT modularity and firm size on cloud adoption contribute to our understanding of how firms can be more internally ready to use cloud computing effectively.