Tag Archives: on-premises applications

Reducing costs is not the only benefit of cloud computing & SaaS

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.

Managing technology, not applications

We’re getting it all wrong—we focused on managing the technology delivery process rather than the technology itself. Where do business process outsourcing (BPO), software as a service (SaaS), Web 2.0 and partner organisations sit in our IT strategy? All too often we focus on the delivery of large IT assets into our enterprise, missing the opportunity to leverage leaner disruptive solutions that could provide a significantly better outcome for the business.

IT departments are, by tradition, inward looking asset management functions. Initially this was a response to the huge investment and effort required to operate early mainframe computers, while more recently it has been driven by the effort required to develop and maintain increasingly complex enterprise applications. We’ve organised our IT departments around the activities we see as key to being a successful asset manager: business analysis, software development & integration, infrastructure & facilities, and project or programme management. The result is a generation of IT departments closely aligned with the enterprise application development value-chain, as we focus on managing the delivery of large IT assets into the enterprise.

Building our IT departments as enterprise application factories has been very successful, but the maturation of applications over the last decade and recent emergence of approaches like SaaS means that it has some distinct limitations today. An IT department that defines itself in terms of managing the delivery of large technology assets tends to see a large technology asset as the solution to every problem. Want to support a new pricing strategy? Need to improve cross-sell and up-sell? Looking for ways to support the sales force while in the field? Upgrade to the latest and greatest CRM solution from your vendor of choice. The investment required is grossly out of proportion with the business benefit it will bring, making it difficult to engage with the rest of the business who view IT as a cost centre rather than an enabler.



A typical IT department value-chain

Unfortunately the structure of many of our IT departments—optimised to create large IT assets—actively prohibits any other approach. More incremental or organic approaches to meeting business needs are stopped before they even get started, killed by an organisation structure and processes that impose more overhead than they can tolerate.

Applications were rare and expensive during most of enterprise IT’s history, but today they are plentiful and (comparativly) cheap. Software as a Service (SaaS) is also emerging to provide best of breed functionality but with a utillity delivery model; leveraging an externally managed service and paying per use, rather requiring capital investment in an IT asset to provide the service internally. Our focus is increasingly turned to ensuring that business processes and activities are supported with an appropriate level of technology, leveraging solutions from traditional enterprise applications through to SaaS, outsourced solutions or even bespoke elements where we see fit. We need to be focused on managing technology enablement, rather than IT assets, and many IT departments are responding to this by reorganising their operations to explore new strategies for managing IT.

Central to this new generation of IT departments is a sound understanding of how the business needs to operate—what it wants to be famous for. The old technology centric departmental roles are being deprecated, replaced with business centric roles. One strategy is to focus on Operational Excellence, Technology Enablement and Contract Management. A number of Chief Process Officer (CPO) roles are created as part of the Operational Excellence team, each focusing on optimising one or more end-to-end processes. The role is defined and measured by the business outcomes it will deliver rather than by the technology delivery process. CPOs are also integrating themselves with organisation wide business improvement and operational excellence initiatives, taking a proactive stance with the business instead of reactively waiting for the business to identify a need.



Managing technology, not applications

The Technology Enablement team works with Operational Excellence to deliver the right level of technology required to support the business. Where Operational Excellence looks out into the business to gain a better understanding of how the business functions, Technology Enablement looks out into the technology community to understand what technologies and approaches can be leveraged to create the most suitable solution. (As opposed to traditional, inward focused IT department concerned with developing and managing IT assets.) These solutions can range from SaaS through to BPO, AM (application management), custom development or traditional on-premises applications. However, the mix of solutions used will change over time as we move from today’s application centric enterprise IT to new process driven approaches. Solutions today are dominated by enterprise applications (most likely via BPO or AM), but increasingly shifting to utility models such as SaaS as these offerings mature.

Finally a contract management team is responsible for managing the contractual & financial obligations, and service level agreements between the organisation and suppliers.

One pronounced effect of a strongly business focused IT organisation is the externalisation of many asset management activities. Rather than trying to be good at everything needed to deliver a world class IT estate, and ending up beginning good at nothing, the department focuses its energies on only those activities that will have the greatest impact on the business. Other activities are supported by a broad partner ecosystem: systems integrators to install applications, outsourcers for application management and business process outsourcing, and so on. Rather than ramping up for a once-in-four-year application renewal—an infrequent task for which the department has trouble retaining expertise—the partner ecosystem ensures that the IT department has access to organisations whose core focus is installing and running applications, and have been solving this problem every year for the last four years.

This approach allows the IT department to concentrate on what really matters for the business to succeed. Its focus and expertise is firmly on the activities that will have the greatest impact on the business, while a broad partner ecosystem provides world class support for the activities that it cannot afford to develop world class expertise in. Rather than representing a cost centre in the business, the IT department can be seen as an enabler, working with other business to leverage new ideas and capabilities and drive the enterprise forward.