In June of 2008 I participated in a conference on The Promise and Reality of Cloud Computing. “There is a clear consensus that there is no real consensus on what cloud computing is,” said the conference organizer in his closing remarks. There was general agreement that something big and profound was going on out there, although we were not totally sure what it was yet.
Along with a number of others, I struggled to define what cloud computing was all about. I finally concluded that the reason we were both excited, but had trouble articulating what we were excited about was because cloud isn’t any one thing. Rather, it’s a new model of computing, only the third such model in the history of the IT industry, centralized and client-server being the two previous ones. There is no single dimension around which to define a computing model, which accounts for the variety of definitions.
Cloud computing has continued to evolve and advance over the ensuing five years, and I think that 2013 will be viewed as the year when cloud truly took off. An article on last April’s Cloud Connect conference pointed out that people are no longer starting their sessions by saying let’s define cloud computing. “This is a clear indication that the industry has moved beyond elementary knowledge-gathering and onto the practicalities associated with cloud implementation and rollout.”
Some of those practicalities concern the relationship between the IT organization and business users. Cloud was widely discussed at the 2013 MIT Sloan CIO Symposium which I attended last May. I remember attending the 2009 MIT CIO Symposium, where cloud was still a relatively new concept that CIOs were just getting their heads around. It has now made the transition from cutting edge, promising innovation to an additional set of tough IT challenges for CIOs to manage. CIOs are indeed embracing cloud, but they are being cautious. The cute child is now a teenager, still full of promise, but also of mischief if not properly handled.
The CIOs in one of the panels I attended agreed that cloud can provide business users with the agility they increasingly demand to keep up with the pace of technological and market changes. Turning to an external cloud service providers is often a faster and less costly way of implementing a new application than relying on the internal IT organization. But, while acknowledging that such business users may turn to outside cloud providers on their own out of frustration with their slow moving IT departments, the CIOs expressed their own frustration with the problems that such actions often lead to, including costly duplication of services and silos of information that make it difficult to deploy enterprise-wide applications and shared processes.
While an increasing number of companies are now paying attention to cloud, they have mostly been doing so to improve the economics of IT. They are looking to cloud to help them expand their current offerings, including reaching out to many more customers without major investments in additional IT infrastructure. And, it is generally assumed that the IT organization will manage the deployment of cloud across the company, be it private, public or hybrid.
But, as number of studies point out, such as IBM’s The Power of Cloud: Driving Business Model Innovation, “cloud has the power to fundamentally shift competitive landscapes by providing a new platform for creating and delivering business value.” Cloud can help companies lower the risks of exploring new revenue streams through new products and services and new channels to market. Over time, cloud can enable all kinds of pay-as-you-go digital services, thus creating entirely new markets, customer segments and business models.
The use of cloud for innovation and growth was the subject of a presentation by McKinsey consultants Will Forrest and Kara Sprague at last April’s Cloud Connect conference. As reported in What Cloud Computing Means For the Future of IT Organizations, Forrest and Sprague presented a rather disruptive cloud adoption scenario. They introduced the concept of new or greenfield IT as the use of IT for revenue growth and business model creation, as opposed to current or old IT.
Current IT use cases include labor automation, individual productivity and transaction processing. New IT use cases include business model transformation, team and corporate productivity growth, and digital-only products. The existing IT organization will continue to manage current IT, while greenfield IT will mostly rely on public cloud computing, and be managed by a new and separate organization.
“The problem in many cases is that adopting cloud technologies is an IT initiative, which means that cloud solutions are all around improving IT and IT productivity,” they note in this interview. “But that’s not where growth is going to come from. . . Incremental investments in productivity don’t drive growth. Companies need to manage those costs and get them as low as possible, and then use the saved money for innovation. Investments need to go into innovation and disruptive business models.”
They note that while cloud is a key lever for decreasing the costs of current IT, the opportunities for significant financial savings are limited. At best, cloud can reduce current IT spending to industry average levels, - around 20-25% cost savings.
Greenfield IT is responsible for enabling innovation and disruptive business models. Their research indicates that CEOs don’t believe that their present IT organizations are capable of implementing this new kind of growth-enabling, business-oriented IT. They will therefore look to public cloud computing for their greenfield IT infrastructure and manage it outside the CIO’s organization.
“The reason for considering this is that so many companies are hampered by legacy technologies that they are unable to be flexible and simply cannot innovate,” say Forrest and Sprague. “This greenfield approach will allow them to test and learn, adapt, and innovate much more effectively than before. . . Unless companies are asking themselves how to use the cloud to disrupt their own business models or someone else's, then adopting the cloud is just another IT project”
“What’s clear from our analysis is that CEOs are looking to the cloud as a source of innovation, not IT productivity. The problem is that the investment profile in many companies doesn't match that priority. Unless companies make that switch, disruptors that use technology to fuel innovation (i.e., like Amazon and other new entrants) are going to drive them out of business.”
Having two separate IT organizations to manage current and greenfield IT respectively is indeed a provocative notion. But the issues leading to this notion are not new. Since its early days, we have looked to IT to both improve productivity and to enable innovation and growth. Productivity improvements require attention to cost reductions and process discipline. Innovation and growth require agility and flexibility. These two distinct IT objectives are often at loggerheads with each other.
In the client-server era, similar issues led to the rise of distributed systems, which were often managed outside the central IT organization. Such distributed systems were primarily designed to support specific line of business or department applications. They emphasized agility and flexibility, while the IT organization focused on optimizing the efficiency and reliability of the IT infrastructures they managed.
Over time, companies ended up with large numbers of relatively small servers distributed across the company, each dedicated to a few applications and often running at low utilizations. These factors eventually led to increased management complexities and costs. Many of these distributed servers were eventually consolidated in the data centers and managed by the central IT organization.
Will these scenarios repeat themselves with cloud computing? As I heard at the 2013 MIT CIO Symposium, CIOs are certainly worried. If the lines of business are now allowed to select public cloud service providers on their own while ignoring corporate standards, the initial agility and flexibility could later lead to rising complexities and higher costs. As was the case with client-server, CIOs fear that a few years from now, they will once more be asked to clean up the mess.
But, we’ve learned a lot in the past two decades. Public cloud service providers can help companies achieve the potentially conflicting IT objectives of productivity improvements and innovation and growth. I’m not sure what governance models will work best, but regardless, close cooperation between the IT organizations and the lines of business is required. Only then will companies realize the promise of cloud computing.