For buyers, the cost savings and agility offered by elastic computing platforms and "pay as you go" software services are creating an exciting option for both small innovators and big company CIOs. But how are companies on the supplier side making the transformation to meet this opportunity and how can they ensure continuous improvement of their services? In this article, Pcubed's Richard Evans looks at how lessons from business transformation can help the computing industry reduce the risks of investing in a new operating model.
There are several ways in which companies are becoming cloud providers. Big fish - Google and Amazon - have made significant investments and continue to expand. But like any self-respecting disruptive technology, cloud services are unlikely to culminate with just a few suppliers. Well-established specialists such as Salesforce.com are already providing focused offerings in software as a service, platform as a service, or infrastructure as a service. Also, a growing list of established, large technology companies such as Microsoft and Sun are making a foray. Plus, there are plenty of rapidly growing, start-up players in the space - Zoho and GoGrid come to mind.
Speculation abounds about the development of subject-matter-specific clouds, such as a healthcare cloud, where companies and other organizations will team up to provide complementary data and processes. There's even the possibility that government agencies and sufficiently large enterprises will create their own internal clouds. After all, why suffer from expensive and under-utilized racks of servers across the organization when you can pool resources and become more elastic?
If you're part of an organization creating new computing and software services or extending the cloud offerings you already have, what's your insurance policy? The expansion and shift needed in terms of operating model and enterprise architecture are of an extreme order of magnitude - akin to "boiling the ocean." Although good ideas are surfacing for addressing operating models and business architectures for the cloud, the big challenge remains : How do you execute on that strategy?
The Successful Transformation
The best way for transformation to succeed is by applying a methodical, step-by-step process of organizational change, in which planned milestones of capability are achieved along the way. The driver for every business ultimately is, "How is this organization going to make money in the future?" For every government agency, it's, "How is this going to lower costs for the taxpayer and enable secure, quality services?" These starting places lead to questions about how to win and retain customers, how to structure financial and pricing models, how to manage internal job and skill changes, how to set up channels to market, how to ramp up sales and marketing, how to equip the technology assets, etc. So the roadmap for successful operations includes both a large dose of new start-up business detail and several components of the traditional organization.
As a starting point, components (or "workstreams") of structuring a cloud computing operation will touch on almost every functional area of the organization. While this isn't a comprehensive list, it lays out the broad nature of the challenge.
Business Model : Delivering cloud services requires a business model that consists of a customer lifecycle (try, buy, use, support, renew/cancel) as well as basic elements such as legal and financial considerations, company and partner training, and channel management.
Business Unit and Pipeline Management : Existing and pipeline products will be re-aligned to meet the new business and services models. Product lifecycle management, especially, will undergo transformation as the average time for a new release is accelerated to keep up with consumer demand and competitive forces. On the plus side, delivering products and services via the cloud makes this logistically easier for operations compared to launching a packaged product.
Information Technology : IT will be building and managing the expanding cloud platform and coping with the new science of elastic computing. Additionally, IT will face challenges in organizing customer relationship data and operations applications as the new model exposes inadequacies with old ways of sharing customer data and coping with support and response management across the organization.
Human Resources : The roles of technologists will change to be more customer-support oriented. This creates some interesting change management challenges around rewards, recruiting, and retention.
Finance : The new business model will affect cost management, billing, and most forms of accounting.
Sales and Marketing : Organizations will be setting up new types of customer relationships with new ways of buying and a new set of customer satisfaction metrics geared as much to services as to product. In addition, delivering new cloud services in the form of software, infrastructure, or platform offerings differs from a typical product launch. You're not only selling something different to customers, you're asking customers to change the way they buy from you.
Operations : Licensing and fulfillment operations, among other areas, will differ in the cloud scenario vs. the packaged product arena.
Facilities Management : Cloud services require an expansion of data centers. In many sectors of the manufacturing industry, how you build can often be as important as what you build. Similarly, innovations and efficiencies in how data centers are built and run will create competitive advantages in pricing and service quality. The geography of facilities also affects utility bills, service quality, and even tax implications of delivering services over the web.
Reducing Cost and Risk
The good news is that most organizations have subject matter experts in each of the key areas : IT architects, HR change agents, customer experience specialists, pricing and licensing specialists, and so on. What doesn't already exist among current personnel can be contracted. But the big challenge is going to be in the shift to a new business model and having each of these areas head in the same direction as efficiently and as quickly as possible. Having grown up with a propensity for entrepreneurial and autonomous business units, existing technology operators will struggle to conduct this composition of change because it needs to take place across so much of the organization.
In addition to any "best practice architecture" or "organizational model" standards that people aim for, senior leaders will also need to implement integrated program management. Many organizations have undergone massive change efforts, whether because of merger and acquisition activities or significant IT deployments. But the unique combination of circumstances for this particular technology change demands being great at three key things:
- Soft skills (often referred to as "emotional intelligence") in working with a mosaic of stakeholders, all needing to make compromises while still finding career satisfaction.
- Program management rigor, using the best, agile techniques and tools available for running multiple, dependent projects. This includes borrowing ideas from "lean" methodologies and applying them to big program management as well as more modern communication and development methods.
- "Three bears" packaging, in which soft skills and program management are implemented "just right," for getting things done in the organization's culture.
This latter point is important. It's common for major initiatives of all kinds to run for a long time before anyone notices that enterprise-wide integration doesn't exist. In such cases, everyone assumes that things are going well. After all, distinct parts of the business have assembled under a shared goal and have set up some form of governing body. People go away and work on their own pieces but also meet now and again at steering meetings with slides outlining progress and issues. In a technology area that's constantly changing, agility rules, right? So planning every detail in advance doesn't fly.
But at the same time, the needs of speed to market, risk management, and cost management mandate a tight dependency among business units. That level of confidence and trust is only going to happen with a decent level of rigor. A good balance is to use a "war room" type of approach. This entails development of a highly visual integrated master plan with real and relevant data alongside a culture fostered for teams to commit to delivery and joint problem-solving in well-sponsored action meetings that have a regular cadence.
What's the bottom line? Business transformation to supplying cloud services should start with worrying about how to make money. But from there it quickly needs to get to a mode of operation that combines discipline and agility.
There's plenty of debate over how big the cloud services market will become. Some estimates put it at a $150 billion industry over the next two years. Others consider all of this cloud talk to be fluffy stuff in the air. But there's no denying that every technology company in the world needs to evaluate and address it at some level. Those that succeed in the transformation will also be the ones that ultimately make the cut.