Cloud & SaaS

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The more I think about it, the more I feel that we need to rethink what “application” means.

The IT industry – and therefore “application” – has been defined by businesses’ need to acquire IT assets. The roles companies play in the industry have accreted around this need, as I’ve pointed out before[1].

The big shift we’re seeing in the market at the moment is a move from companies wanting to acquire IT, to a need to engage services enabled by IT. I know, for example, one airline that has externalised flight planning and pays per flight plan, rather than worrying about the tools need to support a team of flight planners. It’s a capability and process centric view, rather than a technology centric view.

If we follow this line of thought through then we quickly realise that the future of IT in business will be determined by the need to knit together a fabric of IT enabled services, many of which will be obtained externally. I don’t need a project portfolio management solution, I need a portfolio management capability backed by the tools and skills required to make it work. I don’t need a CRM solution (SaaS or not), I need a sales management and reporting methodology (Holden? Miller Heiman?) supported by technology to enable it to scale. It’s outside in thinking, rather than inside out.

What will the industry that accretes around this new need look like? If we look at many of the current on-demand / SaaS vendors, then they could best be described as enterprise software, but in the cloud!. Take the old model and make it multi-tennanted. We should probably call this Cloud 1.0 (where MySpace was social media 1.0). Cloud 2.0, however, will be something different and might be just over the horizon, rendering the current incumbents obsolete, legacy while they’re still young.


References


1. Business models for the old rules of IT @ PEG

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For as long as we can remember, technology’s role has been to support business. Identify your target market, product and goals, map out the required business model and then line up technology behind the various activities to drive cost savings and provide scale.

For many people, cloud computing (and it’s evil twin, software as a service) is the ultimate expression of this approach — information technology as a cheap, efficient and flexible utility grade service: utility computing. Just like electricity or gas, we simple turn on the tap (or hit the light switch) when we want some, and the hole in the wall will provide as much as we need.

Many people struggle to look beyond the utility computing analogy, with Jeff Bezos and Eric Schmitt acting as modern day Samuel Insulls[1], striding across the technology landscape as they build their utility computing networks. This is a view that also equates utility computing with fractionally owned (or leased), multi-tenanted applications and infrastructure deployed at a scale never imagined preciously. Computing that is too cheap to meter.

Utility computing, however, seems to offer a much grander opportunity. When coupled with globalization, utility computing offers us the ability to change the way we think about constructing and managing a company.

Our existing business models are founded on the assumption of needing to manage scarce resources, focused on building command and control structures around leveraging a centrally owned asset. This asset might be monetary deposits, knowledge (often reified through patents), or something physical like a factory or fleet of trucks. Our biggest challenge is marshaling the resources we need to ensure that enough work was done, and the asset provides us with a lodestone to help attract and manage these resources.

Utility computing and globalization enables us to think about this problem in a different way. By providing us with computing power and labor on demand, our main concern becomes what product to deliver (with a second order challenge of where to deliver it), rather than how the product is created.

Zara, a fashion retailer, provides us with a glimpse of the future. Zara has created a pull model where the organization is built around reducing the time from runway to retail[2]. Decisions on what products to produce has been devolved to individual stores who pull in the inventory they think they will sell, rather than head office presenting retail stores with the latest collection. New products rotate through the shelves in matter of weeks, pulled by customer demand, rather than following the seasonal cycle traditional in the industry.

Rapid turnover of products has driven new behavior in Zara’s customers. Customers now visit their local store every week or so, rather than once a quarter, as they are interested in seeing what new products have arrived, slashing Zara’s marketing spend in the process. There’s also a stronger imperative for customers to make an impulsive decision, as they know that the same product will not be in the store when they next visit.

Zara’s approach has made them one of the most successful fashion retailers in the world.

Today’s business models are the culmination of generations of incremental improvements, as successive generations of managers have tweaked their business in an attempt to reach the customer just a little faster than the competition. The first challenge we solved was the one of mass: ensuring that we have enough products available to service the customer, if they choose us. More recently we’ve worried about velocity: aiming to get our product to the customer just when they need it, rather than having to hold stock near the customer on the chance that they might want something we product. The next challenge (as exemplified by Zara) is acceleration: being able to redesign our products rapidly enough to follow customer demands as they evolve.

Utility computing and globalization can provide us with the tools to complete the journey that companies like Zara have started. By commoditizing the basic building blocks of a business — materials, labor and communication — they provide us with the opportunity to make our business models fungible. Why stop at rapidly redesigning our products? Why not dynamically reconfigure our supply chain, following our customers as they move around? Or even rapidly reconfigure our entire value chain, if need be?

The centre of gravity within companies – which for centuries have been built around the management of a central asset held by the company – is shifting. The new centre of organizational gravity will be the ability to rapidly plan and mobilize a critical mass of stakeholders, leveraging staff and assets which you many not even own or directly control.

An agile business will be one that can rapidly evolve its product portfolio to follow customer demand. One that can quickly reconfigure how materials are sourced, products are manufactured and customers are served, across the full breadth of the value chain, allowing it to sail through disruptions that leave competitors stranded. One that can dynamically reconfigure the end-to-end supply chain, delivering the right product to the right customer, just when they realize they need it (or even before they come to this realization). One that can rapidly enter and leave markets and geographies, as need be. And one that can do all of this with resources and services that it does not explicitly own or manage. A company that is built around its ability to mobilize its staff, partners and even its customers. This is the opportunity provided to us by utility computing and globalization.


References


1. Samuel Insull @ Chicago “L” .org
2. Kasra Ferdows, Michael A. Lewis and Jose A.D. Machuca (2005), Zara’s secret for fast fashion, Harvard Business Review

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Neill Rose-Innes (CIO @ Mortgage Choice) and myself are on Mark Jones’ The Scope this week.

The enterprise software market is growing again as cloud computing continues to dominate the strategic agenda. But what other long term trends do CIOs need to consider as 2011 looms.

  • Given the massive growth in SaaS, what are the implications for legacy software?
  • Is the focus is moving away from enterprise software? If so, does it have a future?
  • How can CIOs evaluate their options and make sound judgements on which SaaS products to introduce?
  • Does packaged software have a future?
  • In relation to cloud computing do software apps now live in the browser or with the cloud service provider? What are the implications of this?
  • Can software developers afford to be specialists anymore?
  • What are the challenges or writing software for mobile operating systems such as Android, Microsoft, Apple?

You can find the discussion on the AFR website.

About The Scoop

The Scoop is an open, free-flowing conversation between industry peers. It’s about unpacking issues that affect CIOs, senior IT executives and the Australian technology industry. The conversation is moderated by Mark Jones, The Scoop’s host and producer. More information about The Scoop, including a list of previous guests, can be found here:

http://filteredmedia.com.au/about-the-scoop/

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Here’s an interesting and topical question: is the market for enterprise IT services (SI, BPO, advisory et al) growing or shrinking? I’m doing the rounds at the moment to see where the market is going (a side effect of moving on), and different folk seems to have quite different views.

  • It’s shrinking as the new normal is squeezing budgets and OPEX is the new CAPEX.
  • It’s growing as companies are externalising more functions than ever before as they attempt to create a laser like focus on their core business.
  • It’s shrinking as the transition from on-premsis applications to SaaS implies a dramatic reduction (some folk are saying around 80-90%) in the effort required to deploy and maintain a solution.
  • It’s growing as the mid market is becoming a lot more sophisticated and starting to spend a lot more on enterprise software (witness Microsoft Dynamics huge market share).
  • It’s shrinking as SaaS is replacing BPO, in effect replacing people with cheaper software solutions? (Remember when TrueAdvantage, and Indian BPO, laid off all 150 of its workers after being purchased by InsideView?)
  • It’s growing as the need for more mobility solutions, and the massive growth in the mobile web, is driving us to create a new generation of enterprise solutions.
  • It’s shrinking as cloud computing and netbooks remove what little margin was left in infrastructure services.
  • It’s growing as investment in IT is a bit like gas, and tends to expand until it consumes all available funds. (Remember integration? As the cost of integration went down, we just found more integration projects to fill the gap.)

Like of a lot of these questions, it depends.

Update: Gartner finds that the worldwide IT services declined 5.3% last year, while Computer World UK tells us to expect another year of decline. How much of this is cyclic, and how much is due to a definition of “services” which could be more inclusive?

Updated: It appears that some organisations are not happy with the size and dominance of the IT services industry.

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Does location matter? Or, put another way, is the world no longer flat? Many cloud and SaaS providers work under the assumption that where we store data where it is most efficient from an application performance point of view, ignoring political considerations. This runs counter to many company and governments who care greatly where their data is stored. Have we entered a time where location does matter, not for technical reasons, but for political reasons? Is globalisation (as a political thing) finally starting to impact IT architecture and strategy?

Just who is taking your order?

Just who is taking your order?

Thomas Friedman‘s book, The World is Flat, contained a number of stories which where real eye openers. The one I remember the most was the McDonald’s drive through. The idea was simple: once you’ve removed direct physical contact from the ordering process, then it’s more efficient to accept orders from a contact centre than from within the restaurant itself. We could event locate that contact centre in a cheaper geography such as another state, or even another country.

Telecommunications made the world flat, as cheap telecommunications allows us to locate work wherever it is cheapest. The opportunity for labour arbitrage this created drove offshoring through the late nineties and into the new millenium. Everything from call centres to tax returns and medical image diagnosis started to migrate to cheaper geographies. Competition to be the cheapest and most efficient service provider, rather than location, determines who does the work. The entire world would compete on a level playing field.

In the background, whilst this was happening, enterprise applications went from common to ubiquitous. Adoption was driven by the productivity benefits the applications brought, which started of as a source of differentiation, but has now become one of the many requirements of being in business. SaaS and cloud are the most recent step in this evolution, leveraging the global market to create solutions operating at such a massive scale that they can provide price points and service levels which are hard, if not impossible, for most companies to achieve internally.

The growth of the U.S. enterprise application market

The growth of the U.S. enterprise application market (via INPUT)

Despite the world being laser levelled within an inch of its life, many companies are finding it difficult to move their operations to the cost-effective nirvana that is cloud and SaaS services. Location matters, it seems. Not for technical reasons, but for political ones.

Where we store our assets is important. Organisations want to put their assets somewhere safe, because without assets these the organisations don’t amount to much. Companies want to keep their information — their confidential trade secrets — hidden from prying eyes. Governments need to ensure they have the trust of their citizens by respecting their privacy. (Not to mention the skullduggery this is international relations.) While communications technology has made it incredibly easy to move this information around and keep it secure, it has yet to solve the political problem of ensuring that we can trust the people responsible for safeguarding our assets. And all these applications we have created — both the traditional on-premesis, hosted or SaaS and cloud versions — are really just asset management tools.

We’re reached a point where one of the a larger hidden assumptions of enterprise applications has been exposed. Each application was designed to live and operate within a single organisation. This organisation might be a company, or it might be a country, or it might be some combination of the two. The application you select to manage your data determines the political boundary it lives within. If you use any U.S. SaaS or cloud solution provider to manage your data, then your data falls under U.S. judicial discovery laws, irregardless of where you yourself are located. If your data transits through the U.S., then assume that the U.S. government has a copy. The world might be flat, but where you store your assets and where you send them still matters.

Country-specific regulations governing privacy and data protection vary greatly.

Global data protection heat map (via Forrester)

We can already see some moves by the vendors to address this problem. Microsoft, for example, has developed a dedicated cloud for the U.S. government, known as BPOS Federal, which is designed to meet the government’s stringent security and privacy standards. Amazon has also taken a portion of the cloud it runs and dedicated it to, and located it in, the EU, for similar reasons.

If we consider enterprise applications to be asset management tools rather than productivity tools, then ideas like private clouds start to make a lot of sense. Cloud technology reifies a lot of the knowledge required to configure and manage a virtualised environment in software, eliminating the data centre voodoo and empowering the development teams to manage the solutions themselves. This makes cloud technology simply a better asset management tool, but we need to freedom to locate the data (and therefore the application) where it makes the most sense from an asset management point of view. Sometimes this might imply a large, location agnostic, public cloud. Other times it might require a much smaller private cloud located within a specific political boundary. (And the need to prevent some data even transiting through a few specific geographies – requiring us to move the code to the data, rather than the data to the code – might be the killer application that mobile agents have been waiting for.)

What we really need are meta-clouds: clouds created by aggregating a number of different clouds, just as the Internet is a network of separate networks. While the clouds would all be technically similar, each would be located in a different political geography. This might be inside vs. outside the organisation, or in different states, or even different countries. The data would be stored and maintained where it made the most sense from an asset management point of view, with few technical considerations, the meta-cloud providing a consistent approach to locating and moving our assets within and across individual clouds as we see fit.

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Google (well, James Hamilton) has weighted in on the question of private clouds. As expected from a large cloud provider, James takes the position that private clouds make no sense. His reasoning is straight forward: private clouds will never have the scale of public clouds, therefore private clouds can never achieve the same price point as their public brethren. Ergo, there’s no point in building private clouds.

As I’ve pointed out before, there’s a lot more to cloud than simply reducing costs. The biggest benefit is probably the agility that cloud can bring to your IT estate, leveraging a cloud platform’s ability to codify and automate many of the management practices and create a target platform that can work across a range of deployment options, as well as streamlining hardware provisioning. Companies are also increasingly having to deal with the realities of political boundaries, a situation where the best technical solution might not be acceptable due to legal requirements (such as privacy legislation). Developing a private cloud can be a sensible move in this context.

Of course, if you want to compete purely on cost then private cloud will never hit the same price point as public cloud. But this misses the point that for many companies IT flexibility/agility is more important than cost.

Note: I was going to post this as a comment on James’ post, but comments appear to be broken.

Posted via web from PEG @ Posterous

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Have we managed to design agility out of enterprise IT? Are the two now incompatible? Our decision to measure IT purely in terms of cost (ROI) or stability (SLAs) means that we have put aside other desirable characteristics like responsiveness, making our IT estates more like the lumbering airships of the 1920s. While efficient and reliable (once we got the hydrogen out of them), they are neither exciting or responsive to the business. The business ends up going elsewhere for their thrills. What to do?

LZ-127 Graf Zeppelin

LZ-127 Graf Zeppelin

An interesting post on jugaad over at the Capgemini CTO blog got me thinking. The tension between the managed chaos that jugaad seems to represent and the stability we strive for in IT seems to nicely capture the current tensions between business and IT. Business finds that opportunities are blinking in and out of existence faster than ever before, providing dramatically reduced windows of opportunity leaving IT departments unable to respond in time, prompting the business to look outside the organisation for solutions.

The first rule of CIOs is “you only have a seat at the strategy table if you’re keeping the lights on”. The pressure is on to keep the transactions flowing, and we spend a lot of time and money (usually the vast majority of our budget) ensuring that transactions do indeed flow. We often complain that our entire focus seems to be on cost and operations, when there is so much more we can bring to the leadership team. We forget that all departments labour under a similar rule, and all these rules are really just localised versions of a single overarching rule: the first rule of business, which is to be in business (i.e. remain solvent). Sales needs to sell, manufacturing needs to manufacture, … By devoting so much of our energy on cost and stability, we seems to have dug ourselves into a bit of a hole.

There’s another rule that I like to quote from time-to-time: management is not the art of making the perfect decision, but making a timely decision and then making it work. This seems to be something we’ve forgotten in the West, and particularly in IT. Perfection is an unattainable ideal in the real world, and agility requires a little chaos/instability. What’s interesting about jugaad is the concept’s ability to embrace the chaos required to succeed when resource constraints prevent you for using the perfect (or even simply the best) solution.

Vickers F.B. 5 Gunbus

Vickers F.B.5. Gunbus

Consider a fighter plane. The other day I was watching a documentary on the history of aircraft which showed how the evolution of fighters is a progression from stability to instability The first fighters (and we’re talking the start of WWI here–all fabric and glue) were designed to float above the battlefield where the pilots could shoot down at soldiers, or even lob bombs at them. They were designed to be very stable, so stable that the pilot could ignore the controls for a while and the plane would fly itself. Or you could shoot out most of the control surfaces and still land safely. (Sounds a bit like a modern, bullet proof, IT application, eh?)

The Red Baron: NAME

The Red Baron: Manfred von Richthofen

The problem with these planes is that they are very stable. It’s hard to make them turn and dance about, and this makes them easy to shoot down. They needed to be more agile, harder to shoot down, and the solution was to make them less stable. The result, by the end of WWI, was the fairly unstable tri-planes we associate with the Red Baron. Yes, this made them harder to fly, and even harder to land, but it also made them harder to hit.

Wizz forward to the modern day, and we find that all modern fighters are unstable by design. They’re so unstable that they’re unflyable without modern fly-by-wire systems. Forget about landing: you couldn’t even get them off the ground without their fancy control systems. The governance of the fly-by-wire systems lets the pilot control the uncontrollable.

The problem with modern IT is that it is too stable. Not the parts, the individual applications, but the IT estate as a whole. We’ve designed agility out of it, focusing on creating a stable and efficient platform for lobbing bombs onto the enemy below. This is great is the landscape below us doesn’t change, and the enemy promises not to move or shoot back, but not so good in today’s rapidly changing business environment. We need to be able to rapidly turn and dance about, both to dodge bullets and pounce on opportunities. We need some instability as instability means that we’re poised for change.

Jugaad points out that we need to allow in a bit of chaos if we want to bring the agility back in. The chaos jugaad provides is the instability we need. This will require us to update our governance processes, evolving them beyond simply being a tool to stop the bad happening, transforming governance into a tool for harvesting the jugaad where it occurs. After all, the role of enterprise IT is to capture good ideas and automate them, allowing them to be leveraged across the entire enterprise.

Managing chaos has become something of a science in the aircraft world. Tools like Energy-Maneuverability theory are used during aircraft design to make informed tradeoffs between weight, weapons load, amount of wing (i.e. ability to turn), and so on. This goes well beyond most efforts to map and score business processes, which is inherently a static pieces/parts and cost driven approach. Our focus should be on using different technologies and delivery approaches to modify how our IT estate responds to business change; optimising our IT estate’s dynamic, change-driven characteristics as well as its cost-driven static characteristics.

This might be the root of some of the problems we’re seeing between business and IT. IT’s tendency to measure value in terms of cost and/or stability leads us to create IT estates optimised for a static environment, which are at odds with the dynamic nature of the modern business environment. We should be focusing on the overall dynamic business performance of the IT estate, its energy-maneuverability profile.

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The wisdom of the crowd seems to have decided that both cloud computing and its sibling SaaS are cost plays. You engage a cloud or SaaS vendor to reduce costs, as their software utility has the scale to deliver the same functionality at a lower price point than you could do yourself.

I think this misses some of the potential benefits that these new delivery models can provide, from reducing your management overhead, allowing you to focus on more important or pressing problems, through to acting as a large flex resource or providing you with a testbed for innovation. In an environment where we’re all racing to keep up, the time and space we can create through intelligently leveraging cloud and SaaS solutions could provide us with the competitive advantage we need.

Sameul Insull

Could and SaaS are going to take over the world, or so I hear. And it increasingly looks that way, from Nicholas Carr‘s entertaining stories about Sameul Insull through to Salesforce.com, Google and Amazon‘s attempts to box-up SaaS and cloud for easy consumption. These companies massive economies of scale enable them to deliver commoditized functionality at a dramatically lower price point that most companies could achieve with even the best on-premises applications.

This simple fact causes many analysts to point out the folly of creating a private cloud. While a private cloud enables a company to avoid the security and ownership issues associated with a public service, they will never be able to realise the same economies of scale as their public brethren. It’s these economies of scale that enables companies like Google to devote significant time and effort into finding new and ever more creative techniques to extract every last drip of efficiency from their data centres, techniques which give them a competitive advantage.

I’ve always had problems with this point of view, as it ignores one important fact: a modern IT estate must deliver more than efficiency. Constant and dramatic business change means that our IT estate must be able to be rapidly reconfigured to support an ever evolving business environment. This might be as simple as scaling up and down, inline with changing transaction volumes, but it might also involve  rewriting business rules and processes as the organisation enters and leaves countries with differing regulation regimes, as well as adapting to mergers, acquisitions and divestments.

Once we look beyond cost, a few interesting potential uses for cloud and SaaS emerge.

First, we can use cloud as a tool to increase the flexibility of our IT estate. Using a standard cloud platform, such as an Amazon Machine Image, provides us with more deployment options than more traditional approaches. Development and testing can be streamlined, compressing development and testing time, while deployed applications can be migrated to the cloud instance which makes the most sense. We might choose to use public cloud for development and testing, while deploying to a private cloud under our own control to address privacy or political concerns. We might develop, test and deploy all into the public cloud. Or we might even use a hybrid strategy, retaining some business functionality in a private cloud, while using one or more public clouds as a flex resource to cope with peak loads.

Second, we can use cloud and SaaS as tools to increase the agility of our IT estate. By externalising the the management of our infrastructure (via cloud), or even the management of entire applications (via SaaS), we can create time and space to worry about more important problems. This enables us to focus on what needs to happen, rather than how to make it happen, and rely on the greater scale of our SaaS or cloud provider to respond more rapidly than we could if we were maintaining a traditional on-premises solution.

And finally, we can use cloud as the basis of an incubator strategy where an organisation may test a new idea using externalised resources, proving the business case before (potentially) moving to a more traditional internal deployment model.

One problem I’ve been thinking about recently is how to make our incredibly stable and reliable IT estates respond better to business change. Cloud and SaaS, with the ability to shape the flexibility and agility of our IT estate to meet what the business needs, might just be the tools we need to do this.

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Nicholas Carr does a great job of putting the current hype over cloud computing into a historical and economic context.

Key takeaways:

  • Cloud is analogous to historical shifts with disruptive technologies
  • Reactions to these shifts have been emotional, but the benefits quickly drove adoption
  • The infrastructure and business models for Cloud computing are now robust
  • The Cloud assumes collaboration which will drive experimentation & innovation
  • Conflict between IT and the business can be overcome in the Cloud

Posted via email from PEG

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