IT is undergoing its biggest changes since the advent of client/server computing in the 1980s. These changes are being driven by many factors, chief amongst them the emergence of a different model of computing, - cloud computing. We are entering the Age of the Cloud.
For the IT industry, a new computing model is a very big deal. In the fifty years or so since there has been an IT industry, this would be only the third such model, centralized and client-server computing being the two previous ones. Not surprisingly, there are lots of discussions underway on the implications of this major transition to all aspects of the industry, from the technology and education requirements to the future roles of the corporate IT functions and the CIO position.
I recently came across a very interesting study on The Future of Corporate IT by The Corporate Executive Board, a consulting firm that provides research and analysis to business executives and professionals around the world.The Executive Board study investigated the five-year outlook for corporate IT. It interviewed and surveyed hundreds of IT and business leaders. Its overall conclusion is that fundamental changes, already underway, will take place in how the IT function is organized and managed:
“The IT function of 2015 will bear little resemblance to its current state. Many activities will devolve to business units, be consolidated with other central functions such as HR and Finance, or be externally sourced. Fewer than 25% of employees currently within IT will remain, while CIOs face the choice of expanding to lead a business shared service group, or seeing their position shrink to managing technology delivery . . . This study argues that the changes will be rapid, permanent, and radical. We have advocated for a decade that IT leaders become demand shapers, not order takers. Similarly, we now recommend that IT leaders devote the time, energy, and resources to actively shape the coming transition.”
The study identified “five radical shifts that will transform IT value, ownership and role:
1. Information Over Process: Competitive advantage from information technology shifts toward customer experience, data analytics, and knowledge worker enablement; consequently, information management skills will rise in importance relative to business process design.
2. IT Embedded in Business Services: Centrally provided applications and infrastructure will be embedded in business services and delivered by a business shared services organization.
3. Externalized Service Delivery. Delivery will be predominantly externalized as vendors expand service provision and internal resources become brokers not providers.
4. Greater Business Partner Responsibility: Business unit leaders and end users will play a greater role in obtaining and managing technology for themselves where differentiation has more value than standardization.
5. Diminished Standalone IT Role: IT roles will embed in business services, evolve into business roles, or be externalized. Remaining IT roles will be housed in a business shared service group. The CIO position will expand to lead this group or shrink to manage IT procurement and integration.”
I strongly agree with the first four radical shifts, but I am less sure about the fifth. While the study concludes that the strategic role of the centralized IT function will decline over the next five years, of even greater importance, in my opinion, is their finding that technology is becoming ever more critical to the business and that “the importance of information technology to business success will continue to grow.”
The study concluded that the central IT function will decline because technology capabilities and talent are now needed in just about every part of the organization. But, will the decline be as big as 75% over the next five years, as the study predicts? I just don't know. I have seen enough such predictions in my long career - in the 1970s, the office of the future was supposed to bring about the paperless office, - to be somewhat skeptical.
But, overall, the Executive Board findings nicely capture the essence of the emerging cloud computing model, and clearly differentiate it from the previous models of computing. For example, as traditional process automation has become increasingly standardized and commoditized, the biggest opportunities to leverage IT for innovation and differentiation now lie in front-office, market-facing capabilities, including customer experience, analytics, collaboration and tools to support employees and partners. These people-oriented capabilities are very different from the classic back-office automation of the past fifty years.
Many think of cloud computing as xxx-as-a-service over the Internet, e.g., computing-as-a-service, storage-as-a-service, software-as-a-service, applications-as-a-service. I don’t agree. The vast majority of people don’t want to see the hardware, software or applications, - any more than they want to see wires showing through in electronic devices. I think of cloud computing as offering all kinds of services-as-a-service in human terms - consumer services, business services, government services, financial services, health-care services, educational services and so on.
In fact, what makes this new cloud stage of computing so important is that we are now reaching an inflection point in applying technology to services. When computers first came along, they started to automate repetitive, deterministic transactional services. With the advent of PCs, they moved on to support less well defined, more personal office and communications kinds of services. Then one day, the Internet appeared on the scene and helped us apply computers to more and more services. We developed many innovative web-based services or e-services.
Cloud computing represents the rise of the Internet of services. As digital technologies are increasingly penetrating every nook and cranny of the economy and society in general, we are seeing an explosion in the volume and variety of cloud-based services flowing through the Internet. Consequently, the cloud computing model requires a highly disciplined approach to the management, delivery and consumption of services for individuals and companies.
These IT-based services will be primarily designed by the business units responsible for bringing them to market, as well as to figure out the appropriate models to make them part of a successful business. The technology organizations will play a major role in providing the appropriate platforms and tools on which to design, develop and support these services.
The IT organizations will likely continue to have the primary responsibility for managing the delivery of these services. Data centers are the manufacturing plants of services and information delivery. The basic hardware and software components of the data center have advanced so much that they should now be able to handle just about any workloads thrown at them. The technology is all there. But as the overall systems scale, there is a non-linear growth in complexity, which gives rise to significantly rising costs in managing all this complexity, including energy efficiency, availability, security and labor.
Cloud computing is driving a much needed industrialization of IT data centers and IT infrastructures in general. Thirty years ago, we saw something similar happen in manufacturing. Before that time, most manufacturing plants were fairly inefficient by almost any measure, and were turning out products of varying quality. Then, driven by the huge success of Toyota and other companies around the world, the industrial sector and academia discovered the merits of applying engineering discipline as well as holistic, systems-wide approaches to manufacturing.
Company after company embraced the Toyota Way, Six Sigma, Lean Production and similar methods in their manufacturing and logistics operations resulting in major improvements in their productivity and quality over the last few decades. These cloud-based data centers now require similar major advances in productivity and quality, as well as in engineering and management discipline.
I suspect that as happened with manufacturing, many companies will rely on specialized service providers for most of their standardized, commoditized IT-based services which provide little competitive advantage to the business. They will then be in a better position to focus their internal organizations on more sophisticated services that provide truly differentiating business value. In addition, many companies will choose to become service providers themselves, by selling their sophisticated business services, - which they previously used only internally, - to the general market, thus developing new revenue sources.
As information technology becomes increasingly important to all aspects of the organization and to overall business success, the role of the IT function will significantly change. The lines of business will need to assume responsibility for designing their market-facing, IT-based offerings, working closely with the IT functions to make sure that they do so in the most efficient way possible, leveraging existing resources and platforms from within and outside the company. This calls for greater collaboration between the business and IT sides of the organization.I would expect CIOs to lead this broader use of technology across the business. They will continue to manage the operational use of IT, including setting company wide standards; choosing common platforms; helping to evaluate which IT services to outsource to other companies and which to grow into businesses to offer to other companies; as well as helping to pick the right companies to partner with. But, in addition, as the top information technology experts in the company, they will have to work closely with the senior management of the business to help them design, build and support their increasingly complex applications, solutions and services, most of which will involve a growing ecosystem of partners.
Finally, there are major educational and talent implications for business and academia as technology skills are increasingly becoming integrated into the heart of the business. We need more and more managers, architects and designers that are comfortable with the use of information technologies and that have a good appreciation for the industries and markets in which these technologies are being applied. That means teaching technology to business and management students, and business to technology and engineering students.
Regardless of what happens with the centralized IT organizations in coming years, the importance of information technologies to the business will only continue to grow. The lines of business will increasingly require leaders who have a very good appreciation of the opportunities and risks inherent in using sophisticated technologies for competitive advantage. While it is difficult to accurately predict how companies will be organized in the coming years, we can safely conclude that this new Age of the Cloud will open up major new opportunities throughout the business for those that combine strong technology skills with strong business and management talents.