Tag Archives: SaaS

Is Salesforce.com already legacy IT?

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}}.

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

Have we reached peak SI

Have we hit the peak for systems integrators (SIs) (just as we appear to have reached “peak oil”), and it’s all downhill from here? While SIs are doing well at the moment, structural changes in the IT market suggest that the long term forecast is not all sunshine and roses as some pundits are predicting. With IT spend migrating from IT departments (the SI’s traditional buyer) into the lines of business, the ongoing shift to smaller projects delivering on-demand (rather than on-premesis) solutions, and the replacement of traditional support arrangements with outsourced and managed services, it’s hard to see how SIs will continue to grow when demand for their services seems to be tipping into decline. Globalisation, software as a service (SaaS) and cloud computer are reconfiguring the IT landscape and SIs look like they will be the big losers.

Predictions for the continued growth of the SI market are based on the understanding that companies are consuming more IT today than they were yesterday, and the assumption that increased IT consumption will result in tidy profits for SIs. Predictions are a funny things though, based as they are on historical trends. Guess that the market will continue to rise when you’re in the midst of a bull market and you’ll be right, most of the time. That is until something happens, something you didn’t anticipate, something that catches you unawares. The assumption that SI revenue is tied to IT consumption might no longer be true. New tools such as SaaS and cloud computing are enabling line-of-business leaders to step around the traditional IT department and engage with technology directly, bypassing the SIs traditional relationships in IT and providing them with fewer opportunities to sell their wares. At the same time the shift from on-premises to on-demand solutions – solutions which the business is happy to rent rather than own – is slashing the effort required to install, configure and integrate these new solutions, often by as much as seventy to eighty percent. On-demand solutions also have much lighter support needs relying on self-help wikis, users forums and power users, leaving the SI with little more than a small help desk to manage. With only limited access to this new class of IT buyer, dramatically smaller projects, and lower support revenue, the SIs role as IT enabler seems to be in decline. All good things come to an end though, and you usually only realise that the end has come after it has already passed. IT consumption might be going up, but there’s a good chance that SI revenue could soon be going down at the same time.

SIs are fundamentally sandwich shops{{1}}. When we don’t have the time or money to maintain our own kitchen or make our own sandwiches it can be more efficient to head over to the local sandwich shop to pick up what we need. Their margins are thin and revenue is largely tied to the size of the sandwich you just bought, so they’d really like you to buy a larger and more expensive sandwich. (Notice how sandwiches have grown so much bigger over the years, and everything is now gourmet?) And, of course, pre-made sandwiches are always a lot cheaper than special orders. This sandwich shop model is something that was established early on in the history of business IT. How else could companies afford to access the rare (and expensive) IT skills they needed to create all the systems they need? This might be a payroll system, or stock management, sales pipeline reporting, or the dreaded enterprise resource planning (ERP). Consuming IT used to mean hiring an SI to build and integrate something for you.

[[1]]Business models for the old rules of IT @ PEG[[1]]

The world has changed since then. Back when I started in the industry my home computer couldn’t hold a candle to the beast I was given at work. Today, however, my shiny new 17″ MacBook Pro makes the locked down Windows XP laptops I’m offered seem like a bit of a joke. A new breed of business manager has crept into the business while the world has changed, these are people who grew up with technology and are comfortable solving their technology problems on their own. They know that there are alternatives to the expensive solutions proposed by the IT department (solutions that IT will engage an SI to deliver), and they’re happy to use these alternatives. Why spend a seven figure sum and wait a year for the IT department’s perfect, enterprise-wide project portfolio management solution when there’s one that is good enough, one you can buy on-demand via a company credit card, and one which you know will be up and running in a couple of weeks? We might argue about the regret cost{{2}}, but the art of business is to make a timely decision and then make it work; it’s not to sit on your hands and wait for the perfect solution which will be delivered sometime in the distant future. While demand for new IT solutions might be growing, every time a business manager steps around IT to engage and on-demand solution SIs have one less opportunity to sell their wares.

[[2]]The price of regret @ PEG[[2]]

At the same time we find that these on-demand solutions – when SIs do get their hands on them – only provide a fraction of the revenue that a tradition on-premisis solution does. Time is money for an SI (literally, as most avoid risk by sticking to time and materials contracts) and fielding a SaaS solution takes only a fraction of the time required for a more traditional solution. There’s no hardware to commission with SaaS or cloud computing, nor are there disks to wait for or backup strategies to create. (You still need to worry about business continuity, but that’s another post.) There’s also little chance for customisation, and integration tends to be via standard APIs or pre-built adaptors. It’s not uncommon for a SaaS project to be eighty percent smaller than the more traditional solution. Fewer resources on ground and fewer billable hours means that that the SI can expect their revenues to head in the same direction: south.

We’re also seeing the erosion of SI support revenues. Support used to encompass both the application – in terms of application maintenance, patching and security – and the users – with training and a help desk. Many SaaS and cloud providers don’t want to provide traditional support services as it erodes their margins, margins based on huge scale and little human contact. One solution is to engage an SI to provide these services for them, either on a client-by-client bases or as part of some sort of alliance. A more attractive solution is to move – as much as possible – to a self support model where clients support each other via user forums or a Google search. We soon find that a much smaller help desk will suffice as it’s only required to be the point of last resort, or to support the more technologically illiterate users.

Taken together, these trends – reduced access to buyers, lower project revenues, and lower support revenues – seem to show that the future is not as rosy for the SIs as we first thought. Demand for IT might be growing, but growing demand for IT no longer implies growing demand for the services provided by SIs. The final nail in the coffin is the fairly recent move into SaaS by established IT application vendors. Microsoft has gone on record as wanting to capture a greater percentage of IT spend as license revenues, converting SI installation and customisation costs into licenses by providing clients with prepackaged configurations which can be turned on at the flick of a switch. Rather than pay for a SaaS CRM and then engaging an SI to configure it to your liking, you pay for the SaaS CRM along with a canned sales methodology (Miller Heiman{{3}}? Holden{{4}}?) which works out of the box (as it were). Integration between SaaS solutions is also being converted into a configuration option as SaaS vendors sign alliances – just as Google and Saleforce.com did with GoogleForce – enabling these alliances to offer complete application suites which work together out of the box.

[[3]]Miller Heiman: The Sales Performance Company[[3]]
[[4]]Holden International: Outsell You Competition[[4]]

Whichever way you look at it, now is not a good time to be a SI.

Why Enterprise 2.0 and Social Business Design might be of marginal utility to most of us

It seems that I’ve been pulled into the storm that Martijn{{1}} started{{2}}, and as I live somewhere between the Enterprise 2.0 / Social Business Design cheerleaders and detractors, my position of “E2.0 and Social Business Design is of marginal use for many businesses, but that could change” might need some clarification. The following is a cleaned up comment from elsewhere{{3}}.

[[1]]Martijn Linssen[[1]]
[[2]]Enterprise 2.0 prodigal parent[[2]]
[[3]]It’s quite clear what I think in the post.[[3]]

While Enterprise 2.0 and Social Business Design have proven to provide some benefits by improving communication, the main point of my last post{{3}} was to outline how the nature of many businesses that exist today will limit the utility of these tools. Until we change that we can expect E2.0 etc to provide a lot of benefit to a few companies, but little benefit to the majority.

[[3]]The myth of the inevitability of social organisations[[3]]

We can argue that “people are your most important asset”, but the elephant in the room here is that “the people” are not the asset that the business is built around. For many organisations the best result is to remove the people, such as with lights-out factories, or some of the new SaaS plays which are replacing people-driven BPO with automated self-service solutions.

All businesses today are built around some type of centrally owned asset. This might be a consultancy with it’s methodology (there to provide IP which can be valued on the balance sheet, and to ensure quality), a manufacturer with their factories, a logistics company with trucks and planes, and so on. The asset is easy to find: it’s on the balance sheet.

We hire people to support these assets. Need a button pressed every few hours: hire someone. The people we hire are important, as they can have a huge impact on the efficiency and quality of the outcome. However, they are not central to the business – it’s reason for being.

The nature of business today is to sweat these assets: leverage them as much as possible to make short term profits for the shareholders. (Some people think that this is the wrong attitude, but it is the attitude that regulation and policy encourage and allow.) Most businesses do this by reducing the number of people they need. Swap people for software and see quality go up, costs go down, and capacity go up.

The challenge is for E2.0 and Social Business Design is to succeed in this context.

Some organisations are build around communication with the customer – such as Zappos – and their asset is brand value. E2.0 etc play to this very nicely, and we’re seeing this special case succeeding. There’s some very nice case studies out there.

Other organisations just need someone to pull a lever. A happier and empowered employee is a more productive and effective employee – which is the driver behind human capital management, and one of the principles which underly LEAN – but the old rules still apply. The lever needs pulling, and we want to find the cheapest and most reliable way to do it. Maybe I can just use a rubber band which is replaced once a year? The improved communication E2.0 etc can bring might add some marginal value, but up-ending the business around social business principles makes no sense. This is the general case where we are yet to see E2.0 get broad traction.

At the end of my last post I posit that businesses will move away from the need to own a central asset. When this happens, then we can see broad adoption of E2.0 etc. However, and this is a big however, government regulation is built around the need for companies to have some sort of central asset. Look at regulations like Basel2 and SOX: having and maintaining this asset is mandatory. (The market is the beast that forces you to leverage it, as the government doesn’t care if you go bust). Changing this (as I’ve said before) I a big deal.

That said, we already have a limited general solution to using E2.0 etc. The dirty secret of E2.0 is that it’s being used the same way as most technologies to date: it’s being used to remove people from the equation. Rather than empowering the middle office, E2.0 is being used to eliminate the middle office, within the context of existing command and control structures. (If you want to see where this is going then read up on the British civil service in India, where each manager had one hundred direct reports.) The people left are the folk at the coal face and the thinkers in head office (or, as Seth Godin calls them, the architects).

So, I agree with naysayers that the business case for E2.0 etc “transforming business into a more social business” is not there today. I disagree in that I think it will happen, but we need to up-end regulation first.

The Scoop: The future of software

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/

Some new rules for IT

The other week I had a go at capturing the rules of enterprise IT{{1}}. The starting point was a few of those beery discussions we all have after work, where we came to wonder how the game of enterprise IT was changing. It’s the common refrain of big-to-small, the Sieble to Saleforce.com transition which sees the need for IT services (internal or external) change dramatically. The rules of IT are definitely changing. Now that I’ve had a go at old rules, I thought I’d have a go at seeing what the new rules might be.

As I mentioned before, enterprise IT has historically been seen as an asset management function, a production line for delivering large IT assets into the IT estate and then maintaining them. The rules are the therefore rules of business operations. My attempt at capturing 4 ± 2 rules (with friends) produced the following (in no particular order):

[[1]]The rules of Enterprise IT @ PEG[[1]]

  • Keep the lights on. Much like being a trucker, the trick is to keep the truck rolling (and avoid spending money on tyres). Otherwise known as smooth running applications are the ticket to the strategy table.
  • Save money. Business IT was born as a cost saving exercise (out with the rooms full of people, in with the punch card machines), and most IT business cases are little different.
  • Build what you need. I wouldn’t be surprised if the team building LEO{{2}} blew their own valve tubes. You couldn’t buy parts of the shelf so you had to make everything. This is still with us in some organisations’ strong desire to build – or at least heavily customise – solutions.
  • Keep the outside outside. We trust whatever’s inside our four walls, while deploying security measures to keep the evil outside. This creates an us (employees) and them (customers, partners, and everyone else) mentality.

[[2]]LEO: Lyons Electronic Office. The first business computer. @ Wikipedia[[2]]

Things have changed since these rules were first laid down. From another post of mine on a similar topic{{3}} (somewhat trimmed and edited):

[[3]]The IT department we have today is not the IT department we’ll need tomorrow @ PEG[[3]]

The recent global financial criss has fundamentally changed the business landscape, with many are even talking about the emergence of a new normal{{4}}. We’ve also seen the emergence of outsource, offshore, cloud computing, SaaS, Enterprise 2.0 and so much more.

Companies are becoming more focused, while leaning more heavily on partners and services companies (BPO, out-sourcers, consultants, and so on) to cover those areas of the business they don’t want to focus on. We can see this from the global companies who have effectively moved to a franchise model, though to the small end of town where startups are using on-line services such as Amazon S3, rather than building their own internal capabilities.

We’re also seeing more rapid business change: what used to take years now takes months, or even weeks. The constant value-chain optimisation we’ve been working on since the 70s has finally cumulated in product and regulatory life-cycles that change faster than we can keep up.

Money is also becoming (or has become) more expensive, causing companies and deals to operate with less leverage. This means that there is less capital available for major projects, pushing companies to favour renting over buying, as well as creating a preference for smaller, incremental change over the major business transformation of the past.

And finally, companies are starting to take a truly global outlook and operate as one cohesive business across the globe, rather than as a family of cloned business who operate more-or-less independently in each region.

[[4]]The new normal @ McKinsey Quarterly[[4]]

So what are the new 4 ± 2 rules? They’re not the old rules of asset management. We could argue that they’re the rules of modern manoeuvre warfare{{5}} (which would allow me to sneak in one of my regular John Boyd references{{6}}), but that would be have the tail wagging the dog as it’s business, and not IT that has that responsibility.

[[5]]Maneuver warfare @ Wikipedia[[5]]
[[6]]John Boyd @ Wikipedia[[6]]

I think that the new rules cast IT as something like that of a pit crew. IT doesn’t make the parts (though we might lash together something when in a pinch), nor do we steer the car. Our job is to swap the tyres, pump the fuel, and straighten the fender, all in that sliver of time available to us, so that the driver can focus on their race strategy and get back out on track as quickly as possible.

With that in mind, the following seems to be a fair (4 ± 2) minimum set to start with.

  • Timeliness. A late solution is often worse than no solution at all, as you’ve spent the money without realising any benefit. Or, as a wise sage once told me, management is the art of making a timely decision, and then making it work. Where before we could take the time to get it right (after all, the solution will be in the field for a long time and needs to support a lot of people, so better to discover problems early rather than later), now we just need to make sure the solution is good enough in the time available, and has the potential to grow to meet future demand. The large “productionisation” efforts of the past need to be broken into a series of incremental improvements (à la Gmail and the land of perpeputal beta), aligning investment with both opportunity and realised value.
  • Availability. Not just up time, but ensuring that all stakeholders (both in and outside the company, including partners and clients) can get access to the solutions and data they need. There’s little value in a sophisticated knowledge base solution if the sales team can’t use it in the field to answer customer questions in real time. Once they’ve had to fire up the laptop, and the 3G card, and the VPN, the moment has passed and the sale lost. Or worse, forcing them to head back to the bricks and mortar office. As I pointed out the other week, decisions are more important than data{{7}}, and success in this environment means empowering stakeholders to make the best possible decisions by ensuring that the have the data and functions they need, where they need, when they need it, and in a format that make it easy to consume.
  • Agility. Agility means creating an IT estate that meet the challenges we can see coming down the road. It doesn’t mean creating an infinitely flexible IT estate. Every bit of flexibility we create, every flex point we add, comes at a cost. Too much flexibility is a bad thing{{8}}, as it weighs us down. Think of formula one cars: they’re fast and they’re agile (which is why driving them tends to be a young mans game), and they’re very stiff. Agility comes from keeping the weight down and being prepared to act quickly. This means keeping things simple, ensuring that we have minimum set of moving parts required. The F1 crowd might have an eye for detail, such as putting nitrogen{{9}} in the tyres, but unnecessary moving parts that might reduce reliability or performance are eliminated. Agility is the cross product of weight, speed, reliability and flexibility, and we need to work to get them all into balance.
  • Sustainability. Business is not a sprint (ideally), and this means that cost and reliability remain important factors, but not the only factors. While timeliness, availability and agility might be what drive us forward, we need still need to ensure that IT is still a smooth running operation. The old rules saw cost and reliability as absolutes, and we strived to keep costs as low, and reliability as high, as possible. The new rules see us balancing sustainability with need, accepting (slightly) higher costs or lower reliability to provide a more timely, available or agile solution while still meeting business requirements. (I wonder if I should have called this one “balance”.)

[[7]]Decisions are more important than data @ PEG[[7]]
[[8]]Having too much SOA is a bad thing (and what we might do about it) @ PEG[[8]]
[[9]]Understanding the sport: Tyres @ formula1.com[[9]]

While by no mean complete or definitive, I think that’s a fair set of rules to start the discussion.

Decisions are more important than data

Names and categories are important. Just look at the challenges faced by the archeology community as DNA evidence forces history to be rewritten when it breaks old understandings, changing how we think and feel in the process. Just who invaded who? Or was related to who?

We have the same problem with (enterprise) technology; how we think about the building blocks of the IT estate has a strong influence on how approach the problems we need to solve. Unfortunately our current taxonomy has a very functional basis, rooted as it is in the original challenge of creating the major IT assets we have today. This is a problem, as it’s preventing us to taking full advantage of the technologies available to us. If we want to move forward, creating solutions that will thrive in a post GFC world, then we need to think about enterprise IT in a different way.

Enterprise applications – the applications we often know and love (or hate) – fall into a few distinct types. A taxonomy, if you will. This taxonomy has a very functional basis, founded as it is on the challenge of delivering high performance and stable solutions into difficult operational environments. Categories tend to be focused on the technical role a group of assets have in the overall IT estate. We might quibble over the precise number of categories and their makeup, but for the purposes of this argument I’m going to go with three distinct categories (plus another one).

SABER
SABER @ American Airlines

First, there’s the applications responsible for data storage and coherence: the electronic filing cabinets that replaced rooms full of clerks and accountants back in the day. From the first computerised general ledger through to CRM, their business case is a simple one of automating paper shuffling. Put the data in on place and making access quick and easy; like SABER did, which I’ve mentioned before.

Next, are the data transformation tools. Applications which take a bunch of inputs and generate an answer. This might be a plan (production plan, staffing roster, transport planning or supply chain movements …) or a figure (price, tax, overnight interest calculation). State might be stored somewhere else, but these solutions still need some some serious computing power to cope with hugh bursts in demand.

Third is data presentation: taking corporate information and presenting in some form that humans can consume (though looking at my latest phone bill, there’s no attempt to make the data easy to consume). This might be billing or invoicing engines, application specific GUIs, or even portals.

We can also typically add one more category – data integration – though this is mainly the domain of data warehouses. Solutions that pull together data from multiple sources to create a summary view. This category of solutions wouldn’t exist aside from the fact that our operational, data management solutions, can’t cope with an additional reporting load. This is also the category for all those XLS spreadsheets that spread through business like a virus, as high integration costs or more important projects prevent us from supporting user requests.

A long time ago we’d bake all these layers into the one solution. SABER, I’m sure, did a bit of everything, though its main focus was data management. Client-server changed things a bit by breaking user interface from back-end data management, and then portals took this a step further. Planning tools (and other data transformation tools) started as modules in larger applications, eventually popping out as stand alone solutions when they grew large enough (and complex enough) to justify their own delivery effort. Now we have separate solutions in each of these categories, and a major integration problem.

This categorisation creates a number of problems for me. First and foremost is the disconnection between what business has become, and what technology is trying to be. Back in the day when “computer” referred to someone sitting at a desk computing ballistics tables, we organised data processing in much the same way that Henry Ford organised his production line. Our current approach to technology is simply the latest step in the automation of this production line.

Computers in the past
Computers in the past

Quite a bit has changed since then. We’ve reconfigured out businesses, we’re reconfiguring our IT departments, and we need to reconfigure our approach to IT. Business today is really a network of actors who collaborate to make decisions, with most (if not all) of the heavy data lifting done by technology. Retail chains are trying to reduce the transaction load on their team working the tills so that they can focus on customer relationships. The focus in supply chains to on ensuring that your network of exception managers can work together to effectively manage disruptions in the supply chain. Even head office focused on understanding and responding to market changes, rather than trying to optimise the business in an unchanging market.

The moving parts of business have changed. Henry Ford focused on mass: the challenge of scaling manufacturing processes to get cost down. We’re moved well beyond mass, through velocity, to focus on agility. A modern business is a collection of actors collaborating and making decisions, not a set of statically defined processes backed by technology assets. Trying to force modern business practices into yesterdays IT taxonomy is the source of one of the disconnects between business and IT that we complain so much about.

There’s no finer example of this than Sales and Operations Planning (S&OP). What should be a collaborative and fluid process – forward planning among a network of stakeholders – has been shoehorned into a traditional n-tier, database driven, enterprise solution. While an S&OP solution can provided significant cost saving, many companies find it too hard to fit themselves into the solution. It’s not surprising that S&OP has a reputation for being difficult to deploy and use, with many planners preferring to work around the system than with it.

I’ve been toying with a new taxonomy for a little while now, one that tries to reflect the decision, actor and collaboration centric nature of modern business. Rather than fit the people to the factory, which was the approach during the industrial revolution, the idea is to fit the factory to the people, which is the approach we use today post LEAN and flexible manufacturing. While it’s a work in progress, it still provides a good starting point for discussions on how we might use technology to support business in the new normal.

In no particular order…

Fusion solutions blend data and process to create a clear and coherent environment to support specific roles and decisions. The idea is to provide the right data and process, at the right time, in a format that is easy to consume and use, to drive the best possible decisions. This might involve blending internal data with externally sourced data (potentially scraped from a competitor’s web site); whatever data required. Providing a clear and consistent knowledge work environment, rather than the siloed and portaled environment we have today, will improve productivity (more time on work that matters, and less time on busy work) and efficiency (fewer mistakes).

Next, decisioning solutions automate key decisions in the enterprise. These decisions might range from mortgage approvals through office work, such as logistics exception management, to supporting knowledge workers workers in the field. We also need to acknowledge that decisions are often decision making processes which require logic (roles) applied over a number of discrete steps (processes). This should not be seen as replacing knowledge workers, as a more productive approach is to view decision automation as a way of amplifying our users talents.

While we have a lot of information, some information will need to be manufactured ourselves. This might range from simple charts generated from tabular data, through to logistics plans or maintenance scheduling, or even payroll.

Information and process access provide stakeholders (both people and organisations) with access to our corporate services. This is not your traditional portal to web based GUI, as the focus will be on providing stakeholders with access wherever and whenever they need, on whatever device they happen to be using. This would mean embedding your content into a Facebook app, rather than investing in a strategic portal infrastructure project. Or it might involve developing a payment gateway.

Finally we have asset management, responsible for managing your data as a corporate asset. This looks beyond the traditional storage and consistency requires for existing enterprise applications to include the political dimension, accessibility (I can get at my data whenever and wherever I want to) and stability (earthquakes, disaster recovery and the like).

It’s interesting to consider the sort of strategy a company might use around each of these categories. Manufacturing solutions – such as crew scheduling – are very transactional. Old data out, new data in. This makes them easily outsourced, or run as a bureau service. Asset management solutions map very well to SaaS: commoditized, simple and cost effective. Access solutions are similar to asset management.

Fusion and decisioning solutions are interesting. The complete solution is difficult to outsource. For many fusion solutions, the data and process set presented to knowledge workers will be unique and will change frequently, while decisioning solutions contain decisions which can represent our competitive advantage. On the other hand, it’s the intellectual content in these solutions, and not the platform, which makes them special. We could sell our platform to our competitors, or even use a commonly available SaaS platform, and still retain our competitive advantage, as the advantage is in the content, while our barrier to competition is the effort required to recreate the content.

This set of categories seems to map better to where we’re going with enterprise IT at the moment. Consider the S&OP solution I mention before. Rather than construct a large, traditional, data-centric enterprise application and change our work practices to suit, we break the problem into a number of mid-sized components and focus on driving the right decisions: fusion, decisioning, manufacturing, access, and asset management. Our solution strategy becomes more nuanced, as our goal is to blend components from each category to provide planners with the right information at the right time to enable them to make the best possible decision.

After all, when the focus is on business agility, and when we’re drowning in a see of information, decisions are more important than data.

Is the market for IT services and solutions shrinking or growing?

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.

With cloud computing, the world is not flat

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.

The benefits of SaaS (beyond low cost)

I’ve already written about why I think private clouds can be a good idea. Similar arguments can be made for SaaS, and then some. A friend and I did the email-ping-pong thing and ended up with a (shortish) list of reasons why to go with a SaaS solution over an traditional on-premises solution.

  • OPEX rather than CAPEX cost. The CAPEX gulp is minimised, and the ongoing costs are tied to your own operational cost (head count, etc).
  • Faster provisioning. SaaS is can be up to 90% faster to deploy than on-premises solutions. (Weeks/months rather than months/years.)
  • No more upgrades. You’re always on the latest version, and new features are roll out organically rather than every few years as part of a change management process.
  • More focused vendor and community support. As there is only a single version in play, support efforts from the vendor and user community are focused on the version that you’re using. This also avoids the problem of getting left behind on a stale and unsupported platform (been there, done that, and have the scars to prove it).
  • SaaS provides a platform that scales organically with our organization. You’re not required to invest in additional hardware, software, and provisioning processes, letting your business focus on the business.
  • Reduced IT involvement. IT resources can focus on specific business problems rather than the care and feeding of the system.
  • Try before you buy. Instead of a traditional big license gulp at risk, sign up for a handful of SaaS seats for a few weeks and try it out. (From @shermo1.)

Any more?

Posted via web from PEG @ Posterous

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.