Karl Heinz Streibich is the CEO of Software AG – a very well-known name in the technology industry has now come up with a book titled- The Digital Enterprise, bringing out the moves and motives of Digital Leaders.
Fellow Enterprise Irregular and a great friend Vinnie Mirchandani has narrated this impressive book due for release shortly. Vinnie shared an author copy of the book weeks back and I was so impressed by the book - read and reread the book and I feel good sharing my thoughts on the book – topic and details therein.
The present era of business is seeing lot of excitement and promise all around. Around the world, every day in our lives bring lot of changes – fast, unpredictable and may times we have to struggle hard to understand what the change stands for. Globalization, technology has transformed the playing fields across continents, industries and sectors. Very powerful forces of change have shaken the beliefs in many aspects of governance and social thinking. Fortune 500 companies list is changing faster than the fast pace that we have seen in the past. Powerful brands have suffered huge damages and many industries have gotten transformed substantially so much so that many successful leaders today claim their business need to adapt and transform faster than ever. Leading edge corporations run faster in this direction to ensure that their rate of change inside is ahead of the change seen in their external environments. Looking at these developments, it’s clear that the time to re-imagine the future is now, and it is best done by a fresh school of thought that governs our thinking frameworks to enable a fundamental rethink and envision what is desirable and sustainable. It’s in this context that this book and the examples therein make such a powerful effect.
Karl-Heinz Streibich in the opening chapter makes a passionate plea as to why every enterprise should become a digital enterprise. He points out that for several decades IT was used to make business operations efficient and over time felt the need to create systems of differentiation, typically achieved by integrating the enterprise and extending the integration to its ecosystem thereby reducing the barriers to conduct business.More recently, we see leading edge enterprises around the world focus on creating systems for competitive advantage by embracing digitization. Such enterprises, Karl-Heinz points out are embedding technology in their products and services, moving to technology - enabled business models and utilizing technologies to redefine business models and utilizing technology to redefine their distribution channels. And Karl-Heinz emphasizes that this happens in every industry. All IT products are today becoming digital products leveraging the technology growth from internet to data explosion to in-memory computing, big data, digital collaboration platforms and business process management. The entire chain of data generation, data analysis, data based decision making are enabled through digitization and with collaboration and machine-to-machine communications, enterprises gets enhanced power to execute business processes with unprecedented speed and insight, in real time. With the proliferation of cloud technologies, scale out and scale ups of digital programs are becoming an easy option to exercise for most to the enterprises and the journey of IT products to digital products happen rapidly, a phenomenon well exploited by leaders in unique ways across industries.
Focused on enterprise class innovation, the book is littered with powerful showcases – 22 guest perspectives and more than 300 innovation cameos representing more than 20 industries in more than 25 countries – end of reading the book, one gets the feeling of having gone around the world - for a change, across planets. Its magnitude and range is really wide and deep. The range of themes extend from creating smarter products to inventing new go-to-market models to transforming your value chain to reexamining your stakeholders and there are many more that I have not included herein .
Some cases therein:
- Coca Cola Enterprises talks about mobility and crowd sourcing being brought together to create new industry frameworks to monitor inventory, shape merchandizing and improve service levels, while increasing operational efficiencies.
- Nissan talks about how by Steering –By- Wire, an aviation feature is brought onto their Infiniti range of vehicles
- A Spanish Auto Insurer shares how satellite technology leverage is transforming their Insurance industry
- Deutsche Telecom talks about how it is transforming itself from a pure communication provider into a new future centric business with innovative offerings
- Siemens AG highlights how Germany’s concept of “Industrie 4.0”leveraging continuing transformations of the internet into a network that lets objects, devices, machines and systems communicating with one another driving fundamental changes and how this could lead to the integration of digital and real worlds on a Digital Enterprise Platform.
- Dr Henning Kagermann, former CEO of SAP and currently president of Acatech, the German National Academy of Science & Engineering talks about how more stakeholders are influenced by technology than in the past and how digital enterprises would need to factor in a much wider set of stakeholders.
The exhaustive cases mostly presented by the enterprises directly make deep impact and helps visualize a variety of possibilities. The best part is that these do not necessarily come from the Silicon Valley, where I live but from industries located across the developed world. These Main Street logo’s are indeed taking “digital” to a whole new level – way, way beyond the plain interplay of social, mobile, analytic and cloud computing.
Marc Benioff in his brilliant preface to the book brings out the point that digitization helps the enterprises to get closer to the customers and are redesigning the future of business. He talks about how GE ‘s GEnx engine –currently flying on Boeing’s new 787 Dreamliner is a connected product that provides real time data about engine performance from both GE and the airline customers to communities of service technicians. Service teams on the ground can access the data while the plane is still air-borne , facilitating a new range of services .Philips , Toyota are all leveraging unique models of digitization to serve their customers better/enable new lines of business for them.
The magnitude of this becomes apparent when a top GE executive writes in the book that in a few years from now 50 billion devices could get interconnected, making giant strides in remote monitoring , self-healing etc. , thereby improving the overall quality of business. These trends will provide for massive paybacks and GE sees US$15 trillion added to global GDP in the next 15 years. That’s the approximate size of US economy today!
How can enterprises start their digital journey is a natural question in the mind of everyone reading this – the book promises that any enterprise can master the challenge of reinventing itself as a digital enterprise, The concept of “Digital Babies” Digital Natives” and Digital Phoenixes” provide a context to check an enterprise’s digital journey. The Digital enterprises, the book closes by arguing have to be continuously thinking about their “Next Big Thing”. With increasing customer expectations, competition catching on capabilities faster, ever evolving industry standards and government regulations The pace of technological progress is relentless and the resultant digital enterprise landscape in future will look very different from what it’s today and claimants to the future need to start their journey today and pace up.. or will run the risk of getting grounded fast.
Though a lot of attention these days seems to go to innovation in mobile and social technologies, plenty of complex, hairy “industrial innovation” is also going on. This is encouraging because we face a daunting series of challenges at the global, enterprise, and individual level. We need winners leveraging digital forces and come out successfully to help deal with a range of challenges – big and small, of various size and structures and across geographies. Let's looks at the new business that are shaping many emerging industries - The successful enterprises spanning established corporations to upcoming start-ups—are creating incredible value by succeeding in a new way: by bringing together various streams of technology to create new form of processes, products and services to create value . These are the poster child of digital enterprise success.
The key learning’s for me out of reading the book is the need to completely re-visualize the possibilities by becoming a digital enterprise. That calls for going beyond creating revenue .by mere digital substitution. A digital strategy that focuses on specific business outcomes leveraging various forms of digital technologies can create an edge for the enterprise. It must be noted that a sustainable edge comes in where the inane physical resources mutate with the vibrant digital information to create new value. Winners in doing this get there by thinking big and small together transforming processes, creating/validating/rebooting business models and enabling new waves of customer experience. Any company large or small, old or new can use this digital technology to create a winning edge for its business and perhaps, its industry.
What I see in the book,The Digital Enterprise are a rich set of examples and metaphors that talk the story of entrepreneurs, business leaders, and multinational companies innovatively leveraging technology to tackle big problems, “grand challenges,” In their own ways, these big and small enterprises in their spheres of influence are reshaping the world
Cloud may mean different things to different people – It would be better to focus less on technology but devote more energy to cloud business in terms of how, where, and why these could be used to get unique value was the key message in the Cloud Business Summit, which I attended last week at NYC, courtesy of invitation by Bill Mcnee and his team at Saugatuck Technology. In a very intensive set of sessions, significant insights were brought out by impressive set of presenters followed by good amount of discussions. Let’s examine the context.
It’s now clear that in almost all forward looking business organizations, cloud journey is definitely happening/about to happen in most part of their business/technology operations. The reach is going to be ever expanding and the effect is definitely going to be significantly felt – though this can be an open ended journey in terms of learning and accruable benefits . These force enterprises to plan and manage cloud journey as more and more knowledge on realizable benefits begin to accumulate. Let’s examine the context in a little more detail: As there is a widespread interest in adopting cloud for business, varied approaches grounded on different schools of thought begin to sprout. What we see across the board in the context of cloud and business is that cloud can enable new business application architectures, transform business and create new revenue channel opportunities aside from improving process efficiencies while supporting existing business models. New business services can fundamentally redesign the ecosystem across the extended enterprise creating a new measure of performance across the value chain. These sort of heightened impact calls for a very studied and measured approach to embrace the cloud and that’s where the insights and discussions add immense value.
For example, Saugatuck emphasizes on leveraging cloud for creating new business value and enabling new business opportunities – this is where differentiated and lasting value comes out and as such is very important dimension for business to explore. The CIO panel brought out the fact how business and IT working together can be enabled and why this becomes necessary to create value. More importantly, the ability to take the right set of use cases and deliver business value comes only by working together and it becomes imperative for CIO organizations to steer their organizations in such directions.
Xerox brought out details of their cloud journey in areas of SaaS, Expense Management to see significant improvement in business efficiencies and improved business agility. The more significant theme came out on cloud centered approach towards firmware/software updates for their traditional copiers/scanners/printers – this is an illustration of opening up new business opportunities – something only a cloud based solution coud have enabled. Such successful initatitives spur them to do more, makes their ecosystem partners more excited setting the stage for more such things to happen with Xerox and I would think across the industry as well.
Another important message is to have a pull centered view – from the customer to inside the enterprise. Remember taking the customer to the boardroom discussions in the past – here’s a demonstrated way to make this happen with the emergence of cloud. The key is systems thinking – looking at linkages and relationships across the board and identify opportunities for better orchestration across the ecosystem to create larger value.
SAP’s Nicholas Cumins provided his view of the changing business software / application landscape, the need to effectively leverage Cloud with traditional suites, and how these are being addressed in the next generation of enterprise version and SAP’s strategies in offering varied solutions. I think we need to think through the right pattern of fits: what type of differentiated capabilities could be mapped to applications, devices and delivery methods. Fidelity further elaborated on their cloud journey in the summit.
An important aspect of cloud business either gets overemphasized inside enterprises to the point of avoidance or gets completely overlooked : Am referring to risk management, Important discussions around was an eye opener of sorts. Risk here transcends the traditional boundaries of functions like IT, Finance. The right approach would include identifying, characterizing/ classifying, prioritizing, and then governing Cloud Business changes and implementations. This needs to tie in to the sourcing process of the cloud solution – a very involved engagement but one that can deliver very high value to enterprises.
From an enterprise/CIO perspective, for the first time in this century, IT now has the chance to reposition itself and its role in the enterprise. The shackles that tied traditional IT could now be broken open with the emergence of cloud . Leading CIOs have already started to redefine their role and the value of IT resources away from a focus on provisioning and operating technologies and toward applying information and technology to create unique and sustainable business value. IT has always been waiting for the moment to reassign more funding from maintenance to innovation, to enable creating greater value. Cloud provides that window of opportunity to CIO’s and business now. The economics of IT and opportunity to add business value was never this pronounced in the IT world. Let’s examine this: The need to invest now and wait for results ages later don’t necessarily apply here. Cloud enables companies to gain some of the efficiencies of scale without having to scale themselves. The result is freeing up money previously locked into the 70% of IT committed spend for innovation and new solutions. Typically these are the type of value propositions that interests business and this helps business to take more direct role in making such solutions happen – its more just IT baby and business being an uninterested partner. The relationship fundamentally changes and will demand CIOs react and reform IT.
Around the world and across the board, business is desperately looking for ways and means of creating new solutions, particularly for addressing adjacent markets and new geographies. Cloud fits in very well here: in extending the reach of IT and to provide value added services and in creating new solutions leveraging the ecosystem partners. Integrating in the process, growth and innovation with benefits of economics inside enterprises. We have reached a stage where running business with IT help is normal and the differentiation comes only by creating differentiated and sustainable business value and cloud is a nice fit here. Examining cloud from the standpoint of operations would under leverage its true potential but true opportunities manifest themselves in the business context of growth, innovation and strategic pursuits. CIO’s need to find solutions that aligns with their work culture, their appetite for risk, ability to absorb change, governance and their technology maturity. Irrespective of what these may indicate, increasingly in the cloud world, new ways to make things happen always exist. This doesn’t mean that old models of operation give way to something entirely new right from the word “GO”. A neat blend can exist.
The beauty of this cloud business journey is the fact while cloud can make many things happen at different levels, the realization is that this is still evolving, but for those early adopters it is clearly delivering substantial value Cloud IT and Cloud Business can’t be and needn’t be separated - scalable services and sustainable value can happen only when these two work hand in hand. Saugatuck should be complimented to bringing together business leaders, vendors and analysts to look at cloud as business opportunity and not just just as technical solutions.Clearly with cloud, we are seeing the pioneers and business leaders unshackling the traditional bonds and aiming high and reaching there as well. We will actually see more business taking this path.
As enterprises concentrate on growth, they remain vigilant about costs and operational efficiencies – coming out of recession, even in times of high growth and radiant optimism. Such a model of growth provides IT with a lot of fresh opportunities to adapt and innovate . More than ever, this new model of growth mandates IT to raise its strategic importance to the business rather than just be content to focus on delivery of generic business plans. In many ways the tenor of change is set in with such changing context – With the continuing tight budgets, the CIO’s are now getting forced to” think and act different” – one of the critical ways that can be tried is to follow the time tested model of being creative in discarding the past while taking a bold and fresh approach in creating a new future of IT within enterprises.
The classic way of looking into conceptualizing a new IT organization and its contribution to the enterprise starts by thinking aloud typically by asking the question “What If?” Now in the radar of every CIO and IT organization, Cloud happens to be mostly at the top where some expect more than half of new workloads to naturally move to the cloud besides the expectation that a majority of applications and infrastructure inside the enterprises would move to the cloud over the next few years. That forces the hand of enterprises in ensuring quick think through of the future possibilities for IT in terms of alternate models and the cloud.
Let’s face the facts : CIO’s of large organizations have to manage the burden of the past in terms of legacy systems, data and the processes set in there. They come with huge costs in terms of maintenance and in many cases impose restrictions on flexibility and extensibility. More importantly, in many cases, these systems come in the way of contributing to business agility in an increasingly dynamic world of business across industries,
The cloud model is increasingly being adopted by companies looking to lower cost and improve scalability and enhance flexibility. Many different models of cloud adoption abound varied by size, maturity, expectations, nature of the industry etc. But all agree on one need – cloud services need to be well integrated with existing legacy systems. Some are choosing a hybrid approach between online and on-premise services as a low-risk way to test the benefits. To work, these cloud services need to be well integrated with existing legacy systems.
Possibilities include selectively letting go of the past and unlocking resources and in realigning priorities and setting new directions towards creating more space for innovation and greater business value. Some CIO’s see this as an opportunity to look beyond delivery models towards getting strategic advantage to business through sophisticated information and insights. Cloud centric technologies are a big driver in enabling IT to take center stage in support of innovation, business growth and delivered value.
For enterprises and the CIO, this journey is replete with possibilities, challenges where the upside swing could be alluringly high but the downside fall could be steep if not carefully strategized and executed on those strategies well enough. After all, we are living in an era where technology edge is almost equivalent to business edge and this warrants a new approach to business technology architecture and strategy. That’s when Saugatech came with the interview with Mike Wilens, on Fidelity’s cloud journey , I got real interested.
In a very detailed discussion Mike covers a series of topics and brings out the fact that while people talk a lot about lock-in, reliability, and security in the cloud , these are manageable with good engineering and good planning and it’s not really all that scary – cloud is indeed doable and can be a key enabler for business innovation and enterprise agility. The key here is that the cloud is indeed revolutionary in how we think about application delivery and infrastructure.
In discussionspublished as part of cloud leadership strategies, Mike outlines the approach to the cloud, the execution plan and alignment to business needs. Covering all aspects of cloud journey within Fidelity, there are lots of important insights coming out of actual experience. Starting with foundational issues, such as standards, cost avoidance and experimenting with new capabilities in the Cloud, the discussion then extends to centralization versus decentralization. Inside Fidelity, the cloud model is slowly altering the degree of decentralization with a view to lower costs but not compromise on ability to innovate around business needs. The key insight here is dealing with reducing risk and cost while not inhibiting innovation that can lead to top line growth. Moving onto the more interesting aspects of cloud and business the discussions revolve around business innovation, governance frameworks and balancing opportunity and risk. In areas like collaboration and social computing tools, the logic behind determination of what can be used internally and taking into account the regulatory standards, the usage of such tools externally requires very carefully considered solutions. Wilens points out that the standards that are evolving to help public clouds power down the economies of scale are now becoming available for private clouds as well.
Cloud can be a big platform for testing out /piloting new ideas and can be scaled out and scaled up – at any point in time this pilot footprint on cloud should be actively pursued. For example, he believes that migration to mobile devices and the related implications for the presentation layers of any technology infrastructure will be implemented within the cloud based technologies, private or public. Similarly co-opting the startup partners to try out new operational/innovative models and make them scale up on the cloud infuses new dynamics in developing partnerships and new offerings. Fidelity has found that private Cloud portals can deliver to its clients access to financial information, while still maintaining the on-premise, legacy, mainframe record keeping systems. Here comes the reinforcement, that hybrid solutions leveraging the data of on-premise systems will soon become the norm.
The best practices talked about ranges from adopting de-facto cloud standards, for example cloud infrastructure could be coalescing around the LAMP stack. Some other notable insights include: - Creating shared services with a common platform, look and feel - Use of cloud as testing environment - Portioning of clouds – confidential /mission critical data where to keep -on-premise or outside - What volumes of new workloads to be pushed onto the cloud – particularly in long standing industries like financial services where lot of data tend to be in old but reliable platforms
Operating at both ends of the stacks with a robust risk management plan and governance makes cloud an indispensable framework for IT, Innovation and Business Agility. I recommend reading this for demonstrating that with a good strategy and well laid out execution on such strategy, even in a fast moving but highly regulated industry with a lot of legacy system in place, clouds can be successfully and progressively deployed with demonstrable results in providing flexibility and making business agile.
Far too often, am asked the question – Won’t cloud disrupt the outsourcing vendors in a big way. My answer is Yes & No. Yes. The cloud will definitely impact those outsourcing vendors who just wait and watch or do superficial adjustments to the emergence of cloud. For those outsourcing vendors (just like in the case of all the players in the software ecosystem), trying to understand the impact of the cloud and proactively embracing the cloud, the impact is going to positively felt. Let’s examines this further. It’s clear: The cloud’s impact on outsourcing over the next five years will be profound because “it will significantly influence the demand made on the nature of services and the type of expertise built by service players as seen in the industry today. On an As-Is scenario, one of the key changes would be that the demand on labor will go down – as cloud could cut down need for support processes while enabling near real-time data processing across the value chain for business”. At the same time, the disruptive cloud technology can enable whole host of new business opportunities centered on new business and technology and support execution models hitherto just dreamt of.
Zoom forward: The beauty of the cloud technologies is such that overtime, it would be seen that cloud technologies will enable IT service providers to deliver end-to-end services regardless of the various platforms, applications, and technologies involved. Extend the thought – one can easily see that within enterprises the classification of core/non-core would begin to diminish overtime as cloud enables Enterprise IT to act as a hybrid environment of on-premise, private cloud, and public cloud services. The cloud-based services will change outsourcing contract methodologies. “Buyers will move away from long-term contracts where the return on investment depended on continuous improvement, and move to shorter-term contracts with more flexibility to quickly buy new services. In respect of some business functions, the complexities involved in structuring a deal centered around cloud would encompass requirements like providers promising to take over customer infrastructure and run it from their shared centers to minimize multiple cloud vendor management for customers”. Cloud-based services will also cause an evolution and huge change in the way outsourcing providers price their services.
There are various types of cloud-related services that outsourcers will typically provide: • Consulting around integrating enterprise IT with private and public clouds to create a hybrid environment • Organization change management & risk management • Implementing and managing private clouds to consolidate and optimize infrastructure • Developing custom applications for the emerging cloud software platforms • Developing new applications that integrate collaboration, communication, and cloud platforms • Migrating enterprise applications to the cloud and the related testing, certification, and governance for risk and compliance • Offering many commonly used functions as –a –service • Governance mechanisms, regulation compliance • Making Business –IT alignment realized over time.
In its fully evolved state, service providers will take on the role of a trusted partner to integrate cloud services of multiple service providers with Enterprise IT. Outsourcing providers are going to move up the value chain, offering consulting and information management services — not in the actual delivery of IT but in how buyers should provision and organize their systems and business process workflows.
Services providers that focus on providing services at the lower levels of the infrastructure and platform stack will need to become more agile and nimble to new technologies and faster technology cycles. They will have to provision new services as quickly as their cloud computing alternatives. The ease with which users can access social technologies, mobile devices and SaaS technologies will mean that IT and outsourcing partners will be bypassed, leaving a myriad of contract support challenges. Inevitably, outsourcers will have to support new technologies and do so in a far more rapid manner. This will lead to tactical responses by outsourcing providers for example leveraging service catalogs to provide a range of computing alternatives and service options to business users (including dedicated, shared and cloud services at different prices and service alternatives). But the real change is one of drastic business model change from hierarchical command structures to a modularized, configurable set of services that can be provisioned to clients in a rapid fashion.
Cloud Computing challenges services providers to sell beyond IT - . Service providers that own the IT budget do not have the relationships to effectively sell many of the cloud enabled business services that are emerging, as they require IT, business and executive relationships – and of course process knowledge. “Upwardly mobile” services providers capable of selling at the process layer will become aggregators of on-premise and Cloud IT technologies within hybrid environments.
If a service provider’s revenue is dependent on increased resource consumption as defined by resource units (e.g., managing more servers) any move to the Cloud most likely will result in a net reduction in resource consumption as infrastructure is consolidated, automated and virtualized. Overall, I think Cloud Computing is about to bring a lot of changes to the traditional Outsourcing world with a few challenges such as security which is slated to have crossed the tipping point and is poised to put customers at greater risk at the cost of low-cost cloud alternatives that today present themselves as the new-world outsourcing parties. Nevertheless it will accelerate offshoring / outsourcing, in my opinion because: - It will drive the traditional outsourcing parties to adopt faster nimble methods
- Contract cycles and agreements will have to be revisited as niche core cloud service players will go after the buyers as contract renewal approaches.
- Fixed Contracts will come under fire as demand of variable contracts will increase. Traditional vendors will have a problem as their models are based of one-time fixed with incremental charges while with hardware/software costs dropping dramatically customers will end up paying more
Cloud computing is surprisingly incremental – software provides a potential risk, hardware provides a potential risk but platform as a service offerings and ability to tap huge new markets tilt the scale. We believe cloud models, like SaaS, will take more years to go mainstream in a true sense of the term, ie, relative to the size of the overall software market. This implies that while SaaS has already displaced traditional software in some categories (eg, CRM), a widespread shift will only be gradual. This provides a window of opportunity for IT-services vendors. Newer offerings like platform BPO adds to the service provider pie. Platform BPO can be described in many ways. For example, it can be considered a SaaS model implemented across a business process, or something akin to “process as a service”.
In effect, platform BPO is about: - Automating a business process to ensure lower dependence on manpower resources; - Hosting that process on shared infrastructure (of the vendor or rented by the vendor) rather than on the customer’s premises; - Pricing the offering on a transaction-based model rather than on a cost centric - people deployed model; - Sharing of the core platform across many customers (multi-tenant) rather than proprietary to a single customer. Platform BPO is, thus, a new way to deliver processes that have already been around, and it is much influenced by the emerging cloud-computing concept.
Three years from now I would say a good number of enterprises will have their strategies in place for how they plan to use the cloud. The smaller the enterprise the greater the potential exploitation of a third-party cloud will happen. The larger customers will likely use cloud-like technologies, but internally private clouds. Our customers are unlikely to use any public platforms except for what they would deem as commodity activities, such as payroll, F&A, HR, etc (not core strategies). How does that impact companies like us? Large enterprise market, our predominant market space, is likely to adopt cloud technologies internally, and try to charge back their internal clients/departments on a cloud-like billing pattern. Therefore, they would like to reduce the complexity of what they have to take advantage of the variable costs from a costing perspective. In a three-year timeframe that will be a substantial transformation for a lot of companies, which translates into opportunities for people like us.
On a three to five-year perspective, most of the enterprises will be transitioning to a cloud-based delivery strategy for tech and services. Not likely too big, as big a transformation as ERP, CRM, etc as it will be technology-driven transformation on the inside. Business benefits that the end user will see will be greater efficiency, from infrastructure, hardware perspective. There will be a better sharing of resources. What we are seeing in a lot of pilots is speed. Change and speed will be much better in a cloud environment.
And that provides an opportunity for outsourcing service providers when it comes to cloud integration, cloud enablement of existing applications or creating new applications all together on the cloud.
As long as the outsourcing partners’ providers continue to be innovative, and adapt themselves to the market conditions, there should be no room to get worried. After all, the outsourcing service providers do carry with us the knowledge of the applications, ecosystem and architecture for the customers we operate with. Value gets created only by assisting the end client in their business process. In its true sense, value is not just created by cloud infrastructure providers, as they are only going to commoditize the data centre service.
So, overall, well run offshore headquartered firms shall see net positive opportunities with large enterprises embracing the cloud.
Over the weekend, I finished reading the recently released Microsoft paper on the “Economics of the cloud”. As I head to Denver today for participating in the defragpanel on the impact of cloud computing in the enterprise irregulars track, I just wanted to share some thoughts on the theme which I want to discuss while at the conference both on and off the stage.
The Microsoft paper starts by connecting the dots between technology, economics, and disruption:
Economics are a powerful force in shaping industry transformations. Today‘s discussions on the cloud focus a great deal on technical complexities and adoption hurdles. While we acknowledge that such concerns exist and are important, historically, underlying economics have a much stronger impact on the direction and speed of disruptions, as technological challenges are resolved or overcome through the rapid innovation we‘ve grown accustomed to….
The pressures on IT & the engulfing sense of change in the IT landscape are hard to overlook. The pressures would mean more business begin to seriously look at SaaS, re-negotiating license terms, focusing on rapid adoption of virtualization etc. As part of this and beyond, internal IT would be forced more and more to show more bang for the buck and it is my view that organizations would begin to look more and more to question committed costs and begin to aggressively look at attacking them more systematically – earlier sporadic efforts marked their endeavors. This could also unlock additional resources that could potentially go towards funding new initiatives. There are enough number of enterprises going this route and their service partners are also in some cases prodding them to go this way.The emergence of cloud services is again fundamentally shifting the economics of IT. Cloud technology standardizes and pools IT resources and automates many of the maintenance tasks done manually today. Cloud architectures facilitate elastic consumption, self-service, and pay-as-you-go pricing.
The paper starts by highlighting that the basis for the economic advantage in the cloudosphere is the economy of scale available to cloud computing data centers. The paper identifies three areas of scale advantage:
1. Supply-side savings: Owing to scale, Cloud data centers have lower costs per server.
2. Demand-side aggregation: By aggregation, cloud can support an intermix of tenants and therefore directly contributing to higher server utilization rates ( this would be definitely higher than what can be achieved with single-tenant data centers).
3. Multi-tenancy efficiency: Hosting multiple tenants brings administrative cost overheads, and lowers server cost per tenant and by extension cost per data center user goes down.
On the demand side of things, the story is complementary and drives similar conclusions. By aggregating volume of compute usage, cloud service providers enable users to smooth out peaks and valleys. The contention here is that by pumping up large server volumes, corresponding increase in utilization can be achieved and this has the effect of reducing operational costs. Now extend this scenario : cloud service providers can potentially run a number of data centers while administratively support them through centralized NOCs, with the results the costs can get further spread across.
The paper notes,"public clouds are in a relatively early stage of development, so naturally critical areas like reliability and security will continue to improve. Data already suggests that public cloud email is more reliable than most on-premises implementations". In concluding the section on economies of scale, the white paper goes on to state that economies of scale are so significant that the TCO calculated server wise of a 100K server data center is 80% lower than that of a 1K server data center. While there are legitimate opportunities for a set of customers to pursue private cloud in certain periods of time in their cloud journey, strong indicators suggest that over time the cloud efforts would begin to coalesce around the public cloud given significant computing economic advantages – these need to be to be recognized, and in the process of this journey, vital concerns regarding security and reliability will get addressed (gradually melt away) thus feeding the momentum into the public cloud journey.
Clearly economics will begin to weigh its hand if the cost advantage of public cloud over the private ones are of the order of 10X as the paper seems to suggest . The paper also suggests that any SMB would be crazy to factor on-premise or private cloud into their future strategy when these options are going to cost up to 40x more than public cloud alternatives. I would love to see the complete data points on which the benefits have been quantified and inferences drawn - this will be very useful in advancing the body of knowledge and state of practice of cloud adoption inside enterprises. Lets examine from an organization standpoint : As I wrote earlier, setting up private cloud is a motherhood statement at best( in many organizational surveys, one can find setting private clouds is not in the CIO’s top three priorities – if anything virtualization finds a place-) to make this happen in a credible way means re-examining most parts of IT functioning and business –IT relationship inside enterprises. IT teams while conceptualizing private clouds are happy to retain existing architectural designs, happily propose a clasical DMZ/Perimeterized model for providing security and enabling access, too often leveraging a highly virtualized infrastructure. More often than not, it’s enabling virtualization, automation and self service and color it as private cloud. Do recognize the implicit differences in constructing a private cloud and a public cloud. Comfort with the status quo with some adjustments versus an opportunity to rethink architecture, security, privacy,compliance needs in a way summarizes the nature of thought process and expected results between the private and public clouds. Speaking more directly, public clouds present the opportunity for enterprises to review and achieve specific requirements in the areas like agility, flexibility and efficiency at optimal effort Versus a skewed , boxed implementation of private cloud setup. Taking advantage of the public cloud benefits would far outweigh the advantages of getting boxed inside with private clouds.
Most elements of the bedrock gets affected – the processes, culture, metrics, performance, funding, service levels etc. Well thought out frameworks, roadmaps need to be put in place to make this transition successful. These frameworks need to cater not only to setting up internal cloud but eventually help in embracing the public cloud over the years- not an easy task as it appears. A few of those organizations that master this transition may also look at making business out of these – so it’s a journey – that needs to be travelled onto embracing public clouds. Some business may take a staged approach and call it by private cloud, internal cloud or whatever but eventually the road may lead into public clouds!
I was moderating an informal discussion amongst decision makers on how much resources to allocate to cloud computing efforts inside their respective enterprises. Someone wanted to know if there is a benchmark available as to how much individual enterprises spend on cloud efforts to stay ahead of the curve. I murmured that this may not be so relevant as a factor for taking decisions inside their respective enterprise but at best can act as an aide – either to reinforce that we are doing what everyone else is doing – little or more as the case may be, but can’t become a guiding mantra. Remember best practice vs next practice dilemma. Cloud actually provides an opportunity to create transformational change inside IT and enterprise. I told myself that the key remains evolving a vision for cloud inside every enterprise.
Cloud is a truly disruptive use of technology and many of the traditional principles such as vision, strategy and trusted execution partners are highly relevant in assessing and managing cloud adoption progress inside enterprises.What I see all around is the fact that, many enterprises are not developing a full vision for their cloud computing efforts. I see that in a number of cases, cloud efforts are pilot efforts, departmental efforts, proof of concepts etc. Seldom does one get to see a full blown real time cloud efforts inside enterprises. Why these half steps – while testing the water is per se not bad, winners need to learn to swim –fast and in an easy manner. Enter cloud computing vision – connected dots, big picture ….
Since it is the early days of the cloud, it is understandable that people take baby steps on an experimental basis as a start point , but the rate of adoption of the technology is getting faster and faster. This is irrespective of the nature of the cloud – private, hybrid, public – all are seeing faster rates of adoption and enterprises are sooner than later going to be confronted with the question – how fast are we moving on their cloud initiatives.
The early initiatives of virtualzation hold an ominous parallel here. When server virtualization fever began to grip enterprises, we saw that everyone wanted to rush into that, so much so that many parallel initiatives were happening inside enterprises - so much so no one owned these at a central level and mostly many purused them as independent efforts – the result, enterprises began to face the rising prospect of VM sprawl. This created opportunities for vendors to sell new services around managing VM sprawl. The point here is – without an overaching vision, efforts which look successful in the short term but may create a formdable set of problems to manage – medium to long term!
Simple questions like who manages the process inside to manage these deployments – whats the overall security compliance etc.. In many organizations, individual efforts begin to bubble up at a central level only when security, risk , compliance efforts get pushed from the CFO/CIO organizations, That’s when most of the so called local efforts come together to show a gargantuan picture of the number of moving parts so to say that need to be shephered together..
When enterprises focus on shepherding and untangling the messy knots – already time has passed to examine the business value such efforts could bring in. The shift to cloud does not bestow long lasting benefits by just doing all over - rather I argue , it is going to come out of having a lasting vision, with a well detailed out program plan and aided by flawless execution. A strategy that speaks for itself and a concerted plan of action communicated well enough inside enterprises would go a long way in realizing benefits out of cloud efforts.
Cloud computing is all about driving holistic change in IT, but comes with the flexibility to start locally – this is a double edged sword – you can move fast locally thinking that bottoms up could work but harldly true based on real life experiences. What helps is having an overarching vision and tactically executing smaller programs locally in alignment with the overall vision.Such vision/strategy ought to illustrate how cloud facilitates pursuit and accomplishment of a set of goals articulated at the enterprise level. The plan should espouse the plan of adoption and address issues like compliance, security, governance, change management, partnership plans, auditing, provisioning , chargeback, exit strategies etc. Departmental efforts can draw from this plan the appropriate linkages and drive towards achieving the stated goals through their efforts. Think about this : such effors would help drive business value by bringing alignment across all internal initiatives, bringing cohesion across all efforts and help achieve larger goals such as capex to opex centric spending models, compliance, security etc. Such efforts would truly provide the basis of creating a platform centric IT infrastructure for enterprises to enable IT leverage for lot more benefits.
For cloud initiatives to be successful, enterprises need to focus on the larger end goal and have a game plan to achieve them in a truly centrally driven but localy executed model of execution. Success in large enterprise initiatives are always predicated upon their vision and execution – cloud adoption fits into this model very well. Is the partner system ready for this? The answer is Yes. The benefits of what is available today to service providers in the Cloud ecosystem provides more than ever the promise that they can focus on the business goals of the organizations they seek to support.
Typically larger enterprises need to focus on an array of things centrally to make progress on cloud adoption. Enterprises need to worry about new scale, different levels of security, reliability to support the new order of things. This means putting in place a new model of information and infrastructure governance, deployment, training, support - needless to say all these need to be reframed inside the enterprise. The IT environments need to be upgraded to provide for very high transaction workloads, security infrastructure needs to be retuned and app experiences need to be completely rehauled to provide a consumer feel for look and usage.
We have been waiting for the moment when transformative disruptions of this nature and scale happen. Learning organizations always had a charter to capture the latent knowledge that reside within people, process and systems, Existing technologies and methods could provide a lending hand to capture that vision in a limited way. People across the ranks inside organization can now participate in such transformation efforts quite easily and this could become the bedrock of new forms of collaboration leading to innovation and productivity improvements. Ironically this is mostly facilitated by advances in technology and communications and those responsible for technology management need to be ready to make this transformation possible inside their enterprises.
As I wrote elsewhere earlier, too often, inside enterprises, IT today is seen as the dampener towards embracing change at a mega-scale. IT organizations have an urgent need to transform themselves to keep pace with the change and become more relevant and stay aligned with business to leverage the opportunities that revolve around improving productivity, improving the efficiencies of operation, making organizations more innovative etc.. This also becomes a major force towards attracting talent. The clarion call here is for the enterprises to adopt to this change and create a new basis of competing – to distinguish from competition and create a leading distance from others through good plans, design and practice.
There’s a revolution taking place in the IT ecosystem today. When more and more focus is put on innovation, its evolution, growth and in managing innovation while looking through what conventional collaborative mechanism in fusion with powerful mechanisms like internet enabled collaboration could help achieve –all these point to a world of immense possibilities. With a dominant number of internet users poised to take a dip in the virtual world, the virtual world could become more and more real!! Ten years back it is told that less than 3% of U.S. households had access to broadband. Today, it is estimated that nearly 90% of U.S. households have access to broadband.
Apple and the high tech semicon industry can vouch for the pull from the consumer segment – for both of them, consumer segment happens to be the largest consuming class! Let’s look at the numbers : Morgan Stanley data tells us there are more than 1.2 billion consumers with Internet access, 700 million consumers with their own PCs, and 2 billion consumers with mobile phones, of which more than 400 million users have access to the internet through 3G connections. 1 billion users around the world access the internet through wi-fi connections. Let’s look at what customers do with these devices. Obviously, around the world, they use these devices to send billions and trillions of emails and text messages
-600 + million customers watch videos or YouTube or listen to music on the Web - most of them download music, video etc.
- 600+ million customers use instant messaging - a majority of them participate in online communities and a 100 million plus users actively blog
- The mobile brigade is not far behind. More than half a billion users access the internet from the mobile today around the world. The growth of the mobile markets is reinforcing the growth of the mobile apps market as well in a big way.
Of those 1–2 billion consumers using mobile phones, computers, and the Internet, 300 million people work inside enterprises. End of last year, the estimated number of connected devices at 6 billion devices on the planet — growing to 7 billion this year. These devices include camera phones, computers, , digital cameras, GPS devices , mobile devices, printers, smart phones, Internet phones, MP3 players, surveillance cameras, sensing devices and many other types of gadgets, gizmos, and chip-powered devices. Interestingly, amongst the population of connected devices, it can be seen that four out of five of these devices were not computers (either PCs or servers). Atleast, half of these devices are of the consumer electronics genre. The projections show that over the next three years, this category will double in size, growing much faster outpacing the growth of the traditional computer system.
Plain common sense thinking shows that while all these devices may not arrive inside the enterprise, the reality is that a majority of these devices would begin to show up in the enterprise. Obviously, consumers are bringing the chariots of fire with these connected devices into the enterprise – and in large numbers. The key thing to note here is that way above the investments made by the enterprise; we see that consumers in large measures are self investing in learning to use the connected devices and along the line are creating a huge market for tools and apps for connected devices.
This large group of consumers works with a huge swath of connected devices and wants similar access and experience of the applications and access mechanisms inside enterprises. They are getting used to accessing all information at near zero latency levels. The connected world may not respect the boundaries of enterprise and consumer in terms of experience and access - granted the security and audit mechanisms could be different between these two worlds. This expectation is creating a huge pressure on enterprise IT organizations to harmonize and integrate consumer-oriented devices and applications. Most of the young people joining the workforce have become quite accustomed to the experience that the world of mobile, social networking and connected devices . Clearly this expectation would keep increasing with time as more and younger workforce joins the enterprise.
Just like enterprises began to come under pressure to webify their enterprise(s) in the start of this decade, we see that the consumer driven revolution centering around connected devices are creating a new wave of pressure on enterprises to make their systems and processes ready for the connected devices. The Smartphones, Superphones, iPads, Social Networks get used /consumed quite extensively across the enterprise and at home - to stay informed, connected and productive in their professional as well as their personal lives. Add to that the changing usage demands of an always-on environment with anytime/anywhere access - this fundamentally changes the nature of support and service requirements.
A number of factors go towards making this shift happen: ranging from perceived gaps in the capabilities (in either functionality or ease of use) of existing corporate tools; employees incorporating their favorite social and collaborative tools into daily workflow; the low or absent cost of most consumer-grade tools and economic pressure to do more with less; and a narrowing of the differences between tools designed for the consumer and those built for enterprise. The gap between consumer and enterprise tools is narrowing quite rapidly. Gartner’s Nick Jones says he expects there will essentially be no difference between enterprise and consumer mobile tools within five years. The wave of change is indeed very powerful. New real-time cloud applications, platforms, and infrastructure offer the path to redefine the future of collaboration. The challenge before enterprise IT is to marry this phenomenon to business. We need to transform the business conversation the same way Facebook has changed the consumer conversation. If we look at the real world, Market shifts happen in real time, deals are won and lost in real time, and data changes in real time. Yet, all of us know that inside the enterprise, the software used to run is anything but real time. This forces enterprises to look for tools that work smarter, make better use of new technology (like the mobile devices in everyone’s hands), and fully leverage the opportunities of the Internet.
This “Consumer-Powered IT” trend is having a prolific effect inside enterprise IT. They are clearly changing the rules of the game in respect of the IT support models. It’s a powerful new way to work that will transform organizations over the next three to five years . Against this background, if we were to assess the readiness of most of the enterprises, we find that a majority of enterprises woefully unprepared to leverage this huge impactful opportunities. Such opportunities would revolve around improving productivity, improving the efficiencies of operation, making organizations more innovative etc.. The interesting thing here is change and transformation is happening bottoms up here – so we will see employees not waiting for things to change but their own expectations and expertise, becomes the change that enterprise IT needs to have to realize the potential of this changing nature of connectedness. The security risks, management issues, and policy and governance implications that arise from mass introduction of consumer devices and applications into the enterprise becomes a concern for enterprise IT to handle on their own. One of the things that internet did to traditional business is the deflationary effect it brought on them. Similarly the connected devices and social networks are going to bring in an unusually high degree of delayering within organizations so much so what appeared to be very sophisticated and confined to certain class of users may become very common and accessible to all those who seek them.
This means enterprises need to worry about new scale, different levels of security, reliability to support the new order of things. This means putting in place a new model of information and infrastructure governance, deployment, training, support - needless to say all these need to be reframed inside the enterprise. The IT environments need to be upgraded to provide for very high transaction workloads, security infrastructure needs to be retuned and app experiences need to be completely rehauled to provide a consumer feel for look and usage.
We have been waiting for the moment when transformative disruptions of this nature and scale happen. Learning organizations always had a charter to capture the latent knowledge that reside within people, process and systems, Existing technologies and methods could provide a lending hand to capture that vision in a limited way. People across the ranks inside organization can now participate in such transformation efforts quite easily and this could become the bedrock of new forms of collaboration leading to innovation and productivity improvements. Ironically this is mostly facilitated by advances in technology and communications and those responsible for technology management need to be ready to make this transformation possible inside their enterprises.
Too often, inside enterprises, IT today is seen as the dampener towards embracing change at a mega-scale. IT organizations have an urgent need to transform themselves to keep pace with the change and become more relevant and stay aligned with business to leverage the opportunities that revolve around improving productivity, improving the efficiencies of operation, making organizations more innovative etc.. This also becomes a major force towards attracting talent. The clarion call here is for the enterprises to adopt to this change and create a new basis of competing – to distinguish from competition and create a leading distance from others through good plans, design and practice.
It's often widely acknowledged that all players in the software ecosystem needs to make adjustments and put efforts to embrace the world of cloud. We saw in the earlier posts the nature of issues that need to be confronted by buyers, IT service providers/Outsourcing firms, internal IT . Now lets look at some issues to be faced by other important stakeholders in the cloud ecosytem - software providers & infrastructure service providers.
One of the paradoxes in the software world is that despite being of the high technology genre, software performance have always provided room for improvement and the established order here is to keep improving performance over time. It's a comfortable spot that vendors and buyers always seemed to have settled in. In some cases, performance issues were always a toss between software, consulting firms, IT infrastructure, Internal IT, business processes etc.. Now comes the world of cloud. A near uniform experience at the core level is what’s getting promised by the service providers. In the current on premise IT World, it’s common to see Enterprise this play out all the time : IT managers buy commercial software packages and involve integrators to deliver software solutions and mostly they find that hardware consumption overshoots original plans- so they are forced to invest more in hardware and the process of taking such decisions happen late in the implementation cycle and this introduces more delay and hence the project costs tend to go significantly up,coupled as these are with some related issues forcing more delays.
It's a common knowledge,that many system integrators lack sufficient depth in creating a good enterprise architecture, in time for an engagement and configurations take multiple cycles to deliver an acceptable level of performance. Why did I earlier call such a painful experience as something that all players are comfortable in accepting? Lets look at this. Performance issues that needed to be fixed by the software vendor invariably gets pushed to the next release/version ,while they hype and sell the current release. When software performance trailed expectation by some percentage points, the common belief was that enterprise data centers are underutilised and therefore the excess capacity would take care in bridging the performance gap. Buyers couldn’t care less. It was cheaper and easier to simply throw hardware at the problem rather than to worry about either performance optimization in software, or proper hardware architecture and tuning.
Now the world of cloud/SaaS brings this issue squarely to the table back again. Cloud/SaaS turns that equation around sharply, whether multi-tenant or hosted single tenant. Now, the Cloud/SaaS vendor is responsible for all the operational costs, and therefore the Cloud/SaaS vendor is compelled to look at all levers that can help drive better performance to pay attention to performance, as costs become more directly measurable by them.
Now in such a rapidly changing scenario, what needs to happen? Today, we see traditional ISV’s moving fast to offer their software in the cloud/SaaS model. They typically start in a single tenant model ( We need to recognise that despite multi tenant model being the better one in terms of capacity utilization and for lowering operational costs), ISV’s tell me (and I tend to believe them here),developing multi-tenant software could be way expensive to develop. Its equally an investment intense effort to move a product from single tenant model into multi tenant model. (The theme is identical for businesses running software in their own data centers). It has to be recognised that software organizations are made up for creating software and not focused on benefiting out of investments in new delivery models or in offering consulting to customers for implementation( That product companies show significant revenue stream out of their consulting and services need to be discussed separately - perhaps in a different post altogether)
Coming back to the point of discussion, in such a scenario of product organizations getting focused on software development, businesses that are focussed on performance optimizations prioritized for the hosted model gets a new face of recognition. As a result, there is, and will continue to be, a significant market for infrastructure solutions that can help regular ISVs offer a SaaS model in a cost effective way without having to significantly retool their software.
Lets step back for a moment and see this : For a long time, hosting companies have been integrators of technology, not developers of technology. Today the forces of change are so powerful, they are increasingly pushing hosting companies into being software developers — they become a new niche in software development paradigm -they act as companies who create competitive advantage in significant part by creating software which is used to deliver capabilities to customers. Tools aimed at creating optimised multi-tenant model and delivered as a cloud service - these now become part of infrastructure players - Iaas. The more sophisticated and mature of the lot progress to become platform-as-a-service player(Paas).Many mistakenly think, IaaS players as focusing just on hiring boxes and having them hosted inside data centers and offer them as a rented service.Today, IaaS is now transforming into a software business, with the focus and mission on creating new software methods and tools aimed at introducing new features and capabilities to embrace Cloud/SaaS. Service and Support would be important functions for them while they step in to provide additional support to the software developers in the Cloud/SaaS ecosystem. For the skeptics, my answer is look at the players in the IaaS world, study their antecedents and one will recognize what am trying to say. This is one part of the axiom - the business model is the most disruptive change in cloud computing - not just the technology per se!
I wrote an Op-Ed piece for Sandhill.com on “Cloud Powered Outsourcing” available here. The focus is to highlight how services firms can leverage the disruptive nature of cloud computing to deliver new value to their enterprise clients. Thought I shall leave here a quick synopsis.
In the fast changing world of technology and outsourcing, many forces are at play. And for the outsourcing industry, any development – be it hardware, software, service delivery or something new – will change the business significantly. Cloud computing is rapidly changing the climate of enterprise IT – and the outsourcing business along with it. The disruptive nature of the cloud model will mean outsourcers will have to adapt for success in the next era.
Two significant factors are currently creating a new wave of change in the outsourcing industry. First, enterprise software is increasingly being delivered over the cloud. This is impacting the hardware commitments that a business makes.
Second, we are now seeing a situation where high quality IT infrastructure capacity is quickly becoming a commodity. With delivery models being disrupted, IT service providers should get into a mode of investing massively in creating/provisioning an infrastructure that their outsourcing customers can leverage sooner rather than later. This translates to an investment cycle from the service provider side as IT service providers invest heavily in capacity, virtualization, globalization and automation. With these investments, service providers begin to get positioned as players that are able to offer capabilities that can transform the way organizations access and use IT services.
The advantages of employing a cloud-based model of service delivery are well established now. In certain types of computing environments, embracing clouds can provide significantly lower costs, higher reliability, assured uptime, greatly enhanced flexibility , robust availability and up-and-down scalability configurable in real-time. The contention here is that outsourcing contracts can block move to the cloud. The separation of service lines in outsourcing that forces distinct blocks of services outsourced to different service providers creates significant challenges to embracing a cloud-based service model because both application and infrastructure management services typically come together in the cloud and normally would get supported by a single service provider. Here is a case where the incumbent service provider’s interests conflict with a client trying to adopt a cloud model. Many enterprises have a range of services contractually assigned to different service providers. Today, many buyers have a range of IT services contracts spread across multiple service providers. Under such arrangements, by default, we see that contracts get optimized at the tower level and by extension, the cost and value get sub-optimized at the tower level. Conflicts between the designated service providers managing the different towers get managed by differing contractual terms and it is quite common to see such partners in a conflict. This is a “first order challenge” – a conflict rooted in the existing models of engagement and so typically calls for a fundamental rethink on the outsourcing model per se!
Moving further, adoption issues could come in the way . However attractive the benefits, the determination as to what, how, where and when to launch a new model of cloud service is always an issue that businesses have to grapple with – like any other operational decision. Enterprise outsourcers also find the need to find a solution to the dilemma: Do they continue, modify or disband their existing outsourcing arrangements to embrace the new model and reap the benefits in terms of savings, ease of use and performance.
In a nutshell, a revised cloud/SaaS model of outsourcing through service providers can help buyers in new ways resulting in lowered costs and improved operational performance - never ending requirements in today’s business world. This calls for a majority of businesses with mature IT environments and outsourcing arrangements in place to look at recasting their existing contracts and embrace a new model of outsourcing governance. This transition won’t happen by the flip of a switch. Moving into a cloud environment for consuming IT services requires a fundamental change in the delivery mechanisms that would impact almost all the stakeholders inside business. Read the full article here.
An interesting thread is now on within the enterprise irregulars group on what constitutes private clouds –as again very enlightened discussion therein. The issue that I want to talk about is if private cloud do indeed exist, then what is their adoption path ? Lets start from the beginning : the issue is can we can use the term ”cloud” for describing the changes that happen inside IT architectures within enterprise? Thought there can be no definitive answer – a series of transition to a new order of things, will in my opinion, become imminent.
The pressures on IT & the engulfing sense of change in the IT landscape are hard to overlook. The pressures would mean more business begin to seriously look at SaaS, re-negotiating license terms, focusing on rapid adoption of virtualization etc. As part of this and beyond, internal IT would be forced more and more to show more bang for the buck and it is my view that organizations would begin to look more and more to question committed costs and begin to aggressively look at attacking them more systematically – earlier sporadic efforts marked their endeavors. This could also unlock additional resources that could potentially go towards funding new initiatives. There are enough number of enterprises going this route and their service partners are also in some cases prodding them to go this way.
The change in many senses may make IT inside enterprises to look , behave and perform like cloud computing providers – though there would be limitations( in most places serious) on scale, usage assessments , security and the like. There are strong incentives propelling enterprises to channel their efforts and investments over the next few years in mimicking a private cloud service architecture that gets managed by them internally. This could well become their approach of staging towards finally embracing the cloud(public) over a period of time . These baby steps to nearly full blown efforts are needed in preparing organizations to embrace clouds and it may not be feasible at all to make the shift from on-premise to cloud like flip switch. Serious licensing issues, maturity, lack of readiness, integration concerns, security all come in the way of enterprises looking at public cloud in a holistic way. These steps need not be looked down – they would very well become the foundation to move into public clouds in a big way.
Let’s for a moment assess this theme from a security perspective - a dominant concern business expresses when it comes to clouds. While assessing security requirements in public clouds,we see the recognition that a whole host of chnages need to be done at application architecture levels, the need to accomodate specific compliance requirements, privacy provisions in the public cloud etc.
Lets think through this : setting up private cloud is a motherhood statement at best( in many organizational surveys, one can find setting private clouds is not in the CIO’s top three priorities – if anything virtualization finds a place-) to make this happen in a credible way means re-examining most parts of IT functioning and business –IT relationship inside enterprises. IT teams while conceptualizing private clouds are happy to retain existing architectural designs, happily propose a clasical DMZ/Perimeterized model for providing security and enabling access, too often leveraging a highly virtualized infrastructure. More often than not, it’s enabling virtualization, automation and self service and color it as private cloud. Do recognize the implicit differences in constructing a private cloud and a public cloud. Comfort with the status quo with some adjustments versus an opportunity to rethink architecture, security, privacy,compliance needs in a way summarizes the nature of thought process and expected results between the private and public clouds. Speaking more directly, public clouds present the opportunity for enterprises to review and achieve specific requirements in the areas like agility, flexibility and efficiency at optimal effort Versus a skewed , boxed implementation of private cloud setup. Taking advantage of the public cloud benefits would far outweigh the advantages of getting boxed inside with private clouds.
Most elements of the bedrock gets affected – the processes, culture, metrics, performance, funding, service levels etc. Well thought out frameworks, roadmaps need to be put in place to make this transition successful. These frameworks need to cater not only to setting up internal cloud but eventually help in embracing the public cloud over the years- not an easy task as it appears. A few of those organizations that master this transition may also look at making business out of these – so it’s a journey – that needs to be travelled onto embracing public clouds. Some business may take a staged approach and call it by private cloud, internal cloud or whatever but eventually the road may lead into public clouds!
Cisco founded in 1984,is a global technology powerhouse and a very admired corporation. Its seminal breakthrough of the router connecting two different computer networks laid the seed for the internet enabled networking industry.. Today, as we look ahead, Cisco is positioned to lead the evolution of the network to enable a ‘connected future’ which is increasingly "collaborative, video-driven, personalized, and mobile." With more than 7,000 patents, Cisco today is the worldwide leader in networking technologies that are changing how the world works, lives, plays and learns. The company’s commitment to innovation, customers have been key to Cisco’s success over the years—and it helps shape the future of the Internet by creating unprecedented value and opportunity for customers, employees, investors and ecosystem partners. In less than fifteen years since it was started in 1984, Cisco achieved the feat of the most valuable company ever on earth when its market cap soared to 500 +billion dollars during the dot.com boom era. Cisco is one of Fortune's most admired companies, and being a technology bellwether, has successfully managed multiple transitions in its last 25 plus years of existence. In the mid-1990s, for example, Cisco was strictly a router and switch vendor. But over time Cisco has moved from making gear for data networks to providing all kinds of equipment for voice communications and video systems, highlighted by products like Cisco TelePresence. The company has also become much more focused on software to make networks work even better for communicating, collaborating and entertaining. Perhaps more importantly, Cisco has also been able to reinvent its business operations – continuously!
Cisco is also widely credited as the tech company which has done maximum number of acquisitions in the last ten years and it scores as the leader in a number of areas and initiatives. Understanding Cisco’s mind and its style of execution is something that every investor, partner, executives across industry show interest in. Inder Sidhu, Cisco’s Senior Vice President has come out with a lovely book titled “Doing Both” describing Cisco’s strategy for success. Inder Sidhu points out that by pursuing new and existing business models alike- Cisco has positioned itself to be as nimble as it is strong and as flexible as it is precise. That, contends Sidhu helps Cisco when market transitions frequently! It should be noted that this book is not about technology. Instead, it addresses the fundamental dilemma that every business struggles with at some point - making a choice between two equally attractive strategic alternatives. Some of the nature of choices Cisco had to navigate through as brought out in the book include:
• Sustaining and Disruptive Innovation • Existing and New Business Models • Optimization and Reinvention • Satisfied Customers and Gratified Partners • Established and Emerging Countries • Doing Things Right and Doing What Matters • Superstar Performers and Winning Teams • Authoritative Leadership and Democratic Decision Making
This is highly relevant in fast changing industries like High Tech where Cisco operates. Arguably, some may say that with globalization comes heightened competition and therefore the pace of change has substantially increased for every large industry in the world. The book brings how in Cisco’s DNA the philosophy of exerting both choices is built inside and how in its various points in history, Cisco was guided by this approach leading to spectacular business success. The book brings out the various business models that Cisco planned to pursue and executed around Consumer, Video, Services & Collaboration space. As Sidhu shows how Cisco sort of walked the talk and shares details, the reading of the book becomes more interesting and as we reflect on these, realization dawns about the significance of how tough those decisions must have been to even conceive and still more difficult to execute!
The eight principal dilemmas that the book showcases from the prism of Cisco’s decision making and execution of those make a fantastic reading. Among those covered are classic dilemmas like investing in incremental innovation vs breakthrough innovation simultaneously. Some might think that larger organizations are bestowed with the ability to take right decisions and make those decisions work out successfully. In reality, such a proposition is far from being true - swift decision making and flawless execution are not easily achievable inside large enterprises. Just imagine how may stakeholders need to align to create something new or modify something that exists – enormous pressures from different directions would make it hard for such shared objectives and well aligned execution to happen easily.
The strategic insights that the book provides are quite interesting- such as how Cisco manages the partner channel – how they changed the channel strategy, the globalization initiative of Cisco, deputing talents to potential spin-in’s, the fabled Cisco operational committee’s – Discussions centered around these areas provide a very powerful insight into the decision making rythms of the ever successful industry leader.
If we sort of step back from a very absorbing reading pleasure the book extends – (I finished reading the book in less than 24 hours after I got the book – this while attending to other things), I am drawn to the classical innovator’s dilemma paradigm of Clayton Christensen- he has written extensively on what characterizes a sound management framework. In a nutshell he outlines the framework in terms of ability to have a good set of state mechanisms that executives would go through on varying circumstances and then by extension the mechanisms to make right decisions towards an efficient and successful navigation. Seasoned executives are sort of trained to parse through this framework many times to know what could be the most appropriate path to take in a given context. The grind of analysis of known contexts and the audacity to traverse new paths when faced with a new type of context makes radical winners (like Cisco) more special and those are the type of insights that this book brings out.
Inder Sidhu brings out the key tenets of of Cisco's strategy, very well with his theme based discussions . Cisco is an outstanding exemplar of a firm that has been able to combine profits and productivity - today's success - and expansion and adaptation in an uncertain environment leading to tomorrow's growth. This is the core theme of the book: the seamless fusion inside Cisco of highly optimized operations co-existing with truly flexible, innovative and adaptive continuous expansion. This is a tall order – very very few high tech companies have been so consistently successful as Cisco is in pursuing this strategy – in fact examples of companies that could not manage ever evolving transitions abound in the high tech space. Making spin-in acquisitions for talent, new ideas, new lines of business have proven to be a tough task to execute by many business
As a company besotted with growth, Cisco keeps trying multiple options and in the process tries many novel things to keep growing and maintaining the margins. The principles and the thought process behind the acquisitions like Linksys, Scientific Atlanta, Webex make great reading- I particularly liked the discussion about what new things Cisco got out of these acquisitions in terms of learning and practice knowledge besides their products and services – this is very very important to know that such a culture of reverse assimilation is institutionalized inside Cisco. The rest of the book is skillfully presented and interesting. It captures Cisco's multifaceted strategy well and is full of insights into global strategy and execution – It covers significant areas like how Cisco re-jigged its supply chain soon after it had to write off 2 billion dollars in the dot com bust attributed to supply chain build up, Cisco’s globalization efforts including how it scaled up India as the alternate global headquarters outside of San Jose . For example in the case of supply chain, Cisco implemented a rationalization plan that brought 1300 component suppliers down to less than 300 in four years and it reduced the number of contract manufacturers that it worked with from 20 to 4 in the same timeframe. The book shows that today Cisco is able to handle two times the volume that it had during dot com days and more importantly could get this done with half the people! Successful companies need to take tough decisions and execute on those decisions very well and the book shows Cisco is no exception on this. Another important reading in the book is around Cisco’s structure to bring executive teams together to drive new initiatives together and charter areas of growth around new ideas. Inside Cisco, powers have been shifted from traditional business owners –like head of sales, marketing, engineering into councils and boards, populated with executives across the company. These councils and boards complement the traditional hierarchy, providing scale and replicability of a centralized company and the speed and flexibility of a decentralized one. Cisco’s IT absorption in the last ten years is well chronicled and the insights into how it is now trying to push the collaboration framework inside shows the unending zeal with which Cisco keeps pushing new frontiers. A very lucid description of Cisco’s decision making mechanism is covered inside the book. Takeaway : A highly collaborative system can also move fast if properly driven and can yield significant returns.
The book , I think by design avoids picking on how Cisco outbid the competition in a myriad number of areas it competes - understandable as this book is meant to chronicle Cisco’s internal process , systems and decision making mechanism. Some very powerful examples of failed business models pursued by Escada, Harley Davidson amongst others and how Cisco avoided getting trapped like them makes this book a comprehensive read.
I recommend this book as a refreshing and lively read. This is a classic book – one that chronicles the global strategy and high class execution prowess of Cisco , a top technology player in the world! Very rarely, we will see such a well chronicled book on a successful mega corporation come out from executives inside the organization - Sidhu is an exemplary writer – he brings the situation that he writes about right in front of the eyes of the reader and the discussions are centered around very important aspects of running global business. Highly recommended reading for business leaders and practitioners around the world.
Vivek Wadhwa writes,"Patents make a lot of sense in many industries; they are needed to protect the designs of important components or design of physical products. But in software these are just nuclear weapons in an arms race. They don’t foster innovation, they inhibit it. He adds, That’s because things change rapidly in this industry. Speed and technological obsolescence are the only protections that matter. Fledgling startups have to worry more about some big player or patent troll bankrupting them than they do about someone stealing their ideas". A recent Berkley patent survey shows,venture backed business file for more patents as against startups across industries including software. Brad Feld points out to the absurdity behind the idea of patents. Bob Warfield with multiple startup credits and himself a patent holder points out how difficult it is to fight suits against patent trolls. He points to several absurd situations that we all come across in the name of patents while defending genuine progress.
Earlier we covered why patent systems need to be disciplined and went to the extent of saying that its time to abolish patents for atleast software industry. On the other hand some people think that we have reached the dark age of innovation – Physicist Heubner says that rather than growing exponentially, or even keeping pace with population growth, major innovations & scientific advances peaked in 1873 and have been declining ever since. While examining number of patents granted in the US from 1790 to the present. when he plotted the number of US patents granted per decade divided by the country's population, he found the graph peaked in 1915. The global rate of innovation today, which is running at seven "important technological developments" per billion people per year, matches the rate in 1600. Despite far higher standards of education and massive R&D funding "it is more difficult now for people to develop new technology”.
Patents impede innovation and not encourage innovation. Innovation may be the core to success and it is not be mistaken against patents or R&D budgets. As Michael Scrage wrote brilliantly, the simple fact is that R&D spending is an input, not a measure of efficiency, effectiveness or productivity. Ingenuity, invention and innovation are rarely functions of budgetary investment & pointed to the fact that Wal-Mart, Texco and Dell have miniscule R&D budgets, their quality, procurement and growth requirements have probably done more to drive productive innovation investment than any competing initiatives. Growing market competition, not growing R&D spending, is what drives innovation. A successful innovation policy is a competition policy where companies see innovation as a cost-effective investment to differentiate themselves profitably. John Hagel adds that it is a fallacy in equating patents with innovation. Normally the focus is on product innovation, ignoring process and business model innovation. Process innovation is far more powerful than product innovation – it has a multiplier effect that product innovation can rarely match & notes that the only effective measure of innovation activity is the rate of productivity improvement in an enterprise – the growth in value added generated per employee. Static productivity measures can be misleading & what may really count is the ability to sustain and amplify productivity improvements through innovative products, process improvements or new business models. Lets all shout for more innovation and whatever comes in the way that may include patents – lets get rid of them!
Just finished some random reading. Started with Jeane Bliss on customer loyalty and Zappos is profiled therein in detail. Zappos decision making paradigm seems to be centered around making far reaching changes happen as part of their DNA. As Tony Hseih says in his afterword of Jeane Bliss book on customer loyalty –“Decision making not purposefully directed can lead your company down a path and to an unintended conclusion. Products, Services, Companies can be taken down the wrong direction whereas well thought out , purposeful decision making centered around customer needs can make a huge difference to business growth !
The more and more I think of it , decision making gets more impactful when it meets the trajectory of change. Look at Seth Godin’s post on the calculus of change. Seth outlines how how a change in operating systems (from DOS to Windows) made people look at different things – in this case, people began to rethink about choice in word processors. The leader at that time was Word Perfect but when Windows began to take centerstage, World also grew along with it -all this while Word Perfect was not ready on the Windows platform. The closest analogy is in Smartphones and where Android is set to get to the top of the heap, many business are having just an iPhone app and not investing in getting an Android App out fast. The point of maximum disruptive timing is the point where people have to make something new or different to happen, got to make a change and can't be avoided.
Extend this logic. When is the last time when the sales , marketing & customer service function of our business got a refresh – no am not taking about just changing people but the process, measures, response etc. Extend this a litte further – when did the core technologies that run our business enterprise get a meaningful refresh – Am talking about Enterprise Software here. Today emerging technologies revolve around Java, MySQL, Open Source, Cloud Computing, and Web 2.0 Social Media. Clearly, these did not exist in full form when the current enterprise software leaders began to dominate the space. Each one of these forces are powerful forces of disruption .
As the beneficiaries and victims of the technology gap phenomenon can testify. For people in both the camps, everything in their digital lives have changed so much. Today, more than 4 billion people around the world now use cell phones, and for 450 million of those people the Web is a fully mobile experience.Alas the big fat guys of the technology world are so slow to embrace and make them as part of their core offerings. We all know the lessons of history.
Look at what change can do to the employed. The evolution of the role of the employed is indeed remarkable. Thomas Malone believes that we're headed for equilibrium in the global wage market.It may take a decade or two, but at some point, people capable of doing work will get paid roughly the same amount wherever they are. It will happen a lot faster than people think," Malone said. He earlier wrote,"Four decentralized organizational structures—loose hierarchies, democracies, external markets, and internal markets—that will be enabled by technology but centered around enduring human values shall be the dominant model. The shift from "command-and-control" management to "coordinate-and-cultivate," and the new skills that will be required to succeed would become critical to succeed. A framework for determining if a company’s situation is ripe for decentralizing and which organizational structure would be most effective would evolve".
Mckinsey identifies ten important tech-enabled business trends to watch out- Its an important read. For the first six trends, which can be applied across an enterprise, it will be important to assign the responsibility for identifying the specific implications of each issue to functional groups and business units. The impact of these six trends—distributed cocreation, networks as organizations, deeper collaboration, the Internet of Things, experimentation with big data, and wiring for a sustainable world—often will vary considerably in different parts of the organization and should be managed accordingly. Three of the trends—anything-as-a-service, multisided business models, and innovation from the bottom of the pyramid—augur far-reaching changes in the business environment that could require radical shifts in strategy. CEOs and their immediate senior teams need to grapple with these issues; otherwise it will be too difficult to generate the interdisciplinary, enterprise-wide insights needed to exploit these trends fully.
Mckinsey rightly observes, the pace of technology and business change will only accelerate, and the impact of the trends above will broaden and deepen. For some organizations, they will unlock significant competitive advantages; for others, dealing with the disruption they bring will be a major challenge. It’s clear that organizations should incorporate an understanding of the trends into their strategic thinking to help identify new market opportunities, invent new ways of doing business, and compete with an ever-growing number of innovative rivals. Embracing change in every major twist and turn is an absolute must and decision making process that can force technology companies to respond in a timely and efficient manner would bring huge rewards to the stakeholders of the business. To keep trying to change regularly needs to be in the decision framework and DNA of sustainable growth focused business . Watch out for the alternative : Standing still is the kiss of the death and those standing with deep roots would not see such waves of change but when they get affected, it would be a massive hit for them.
Sadagopan's Weblog on Emerging Technologies, Trends,Thoughts, Ideas & Cyberworld "All views expressed are my personal views are not related in any way to my employer"
