The following analogy popped up the other day in an email discussion with a friend.
Running a business is a bit like being the Fat Controller, running his vast train network. We spend our time trying to get the trains to run on time with the all too often distraction of digging the Troublesome Trucks out of trouble.
Improvement often means upgrading the tracks to create smoother, straighter lines. After years of doing this, any improvement to the tracks can only provide a minor, incremental benefit.
What we really need is a new signalling system. We need to better utilise the tracks we already have, and this means making better decisions about which trains to run where, and better coordination between the trains. Our tracks are fine (as long as we keep up the scheduled maintenance), but we do need to better manage transit across and between them.
Swap processes for tracks, and I think that this paints quite a nice visual picture.
Years of processes improvement (via LEAN, Six Sigma and, more recently, BPM) had straightened and smoothed our processes to the point that any additional investment has hit the law of diminishing returns. Rather than continue to try and improve the processes on my own, I’d outsource process maintenance to a collection of SaaS and BPO providers.
The greater scale of these providers allows them to invest in improvements which I don’t have the time or money for. Handing over responsibility also creates the time and space for me to focus on improving the decisions on which process to run where, and when: my signalling system.
This is especially important in a world where it is becoming rare to even own the processes these days.
We forget just how important a good signalling system is. Get it right and you get the German or Japanese train networks. Get it wrong and you rapidly descend into the second or third world, regardless of the quality of your tracks.
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.)
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.
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.