Accenture Outlook: The coming of the cloud corporation

I have written, with two colleagues, an article for Accenture’s Outlook journal which introduces the idea of the Cloud Corporation:

Accenture Outlook: The coming of the cloud corporation.

The article discusses various trends in outsourcing which will impact upon Cloud (and vice versa).

Cloud computing remains focused on cost cutting achieved through new technology, however lessons from the past suggest that this is only a minor part of the disruptive innovation which Cloud may offer. In particular we should not ask “what is cloud computing?” but rather “why is cloud computing?” – in essence exploring the pressures on innovation today which resonate with the idea of utility computing.

While the cost saving is an important incremental innovation on existing practices, it is cloud’s potential to allow new forms of organisational collaboration which offer the potential of radical innovation. Moving the data-centre outside the organisation asks us to evaluate the relationship between the data-centre and the organisation. Is it “ours” to horde and control, or are parts of it able to be shared, opened, exploited by others (partners, customers, suppliers etc)? In turn does this opening of the relationship between the organisation and its information recast the organisation itself?

 

A Cloudy Future for Microsoft?

Friends at www.horsesforsources.com (an influential Outsourcing Blog) provide a useful analysis of Microsoft’s position in the Cloud Market. The comments are perhaps more interesting than the piece…

Click here for their article - A Cloudy Future for Microsoft?.

Lock-ins, SLAs and the Cloud

One of the significant concerns in entering the cloud is the potential for lock-in with a cloud provider (though clearly you otherwise remain locked-in with your own IT department as the sole  provider).

The cost of moving from one provider to another is a significant obstacle to cloud penetration – if you could change provider easily and painlessly you might be more inclided to take the risk. Various services have emerged to try to attack this problem – CloudSwitch being one which created a considerable buzz at the Structure 2010 conference.   Their service aims to provide  a software means to transfer enterprise applications from a company’s data centre into the cloud (and between cloud providers). Whether it can live up to expectations we have yet to know, but CloudSwitch is attempting to provide a degree of portability much desired by clients – and probably much feared by Cloud Service providers whose business would reduce to utility suppliers if they are successful.

But this links into another interesting conversation I was having with a media executive last week. They mentioned that since cloud virtual machines were so cheap they often (effectively)  host services across a number of suppliers to provide their own redundancy and thus ignore the SLA. If one service goes down they can switch quickly (using load balancers etc) to another utility supplier. Clearly this only works for commodity IaaS and for relatively simple content distribution (rather than transaction processing) but it is a compelling model… why worry about choosing one cloud provider and being locked-in or risking poor SLA  - choose them all.

An Over Simplistic Utility Model

Brynjolfsson, E., P. Hofmann, et al. (2010). “Economic and Business Dimensions Cloud Computing and Electricity:Beyond the Utility Model.” Communications of the ACM 53(5): 32-34.

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This paper argues that technical issues associated with innovation, scale, and geography will confront those attempting to capitalise on utility computing. They take the utility model of computing (i.e. that cloud computing is analogous to the electricity market) and identify key challenges.

In particular they identify the following technical challenges:

1)    The pace of innovation of IT – managing this pace of change requires creative expertise and innovation (unlike utilities such as electricity which, they argue, are stable).

2)    The limits of scale – Parallelisable problems are only a subset of problems. Scalability of databases has limits within architectures. APIs e.g. using SQL are difficult for high-volume transaction systems. Further large companies can benefit from Private Clouds with little advantages, and greater risks, if they go to the public cloud.

3)    Latency: The speed of light limits communication. Latency remains a problem. For many applications performance, convenience and security considerations will demand local. [While not mentioned in the article it is interesting to note that this problem is being attacked by http://www.akamai.com/ who specialise in reducing the problems of network latency through their specialist network]

They also identify the following business challenges:

1)    Complementarities and Co-Invention: “Computing is still in the midst of an explosion of innovation and co-invention First that simply replace corporate resources with cloud computing, while changing nothing else, are doomed to miss the full benefits of the new technology” (p34). It is the reinvention of new services which are key to the success of cloud. IT enabled businesses reshape industries – e.g. Apple quadrupled revenue by moving from perpetual licence to pay-per-use in iTunes, but this demanded tight integration of EPR and Billing which would have been difficult within the cloud given their volumes.

2)    Lock-in and Interoperability: Regulation controlled energy monopolies, and electrons are fungible. Yet for computing to operate like electricity will require “radically different management of data than what is on anyone’s technology roadmap”. Information is not electrons – cloud offerings will not be interchangeable. “Business processes supported by enterprise computing are not motors or light-bulbs”.

3) Security – We are not concerned about electrons as we are with information. Regulators, laws or audit is not needed. New security issues will need to be faced (see  (Owens 2010) for interesting debate on security).

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Owens, D (2010) “Securing Elasticity in the Cloud”, Communications of the ACM 53(6) 48-51 doi: http://doi.acm.org/10.1145/1743546.1743565

IT departments as “outside”

Joe Peppard, in a recent EJIS paper (Peppard 2007), makes the point that utility computing (along with outsourcing and ASP) are premised on a gap between IT function and the customer/user. “They assume the user is the consumer of IT services, failing to acknowledge the value derived from IT is often not only co-created but context dependent” (ibid, p 338).

Joe suggest that this is founded upon the ontological position that “IT is an artefact that can be managed”, and subsequently that the value of IT is in its possession.  This leads to the obvious claim that rather than focusing on IT management, we should focus on delivery of value through IT. This brings our perspective of IT function (and of Cloud Computing within the enterprise) from the realm of cost-saving efficiencies (as Carr 2003 might suggest) to a focus on contextual practice – supporting work.  As Joe’s the article argues “to seek not to management IT per se, but to manage to generate value through IT”.

Carr’s (2003) argument is thus that the IT function is not needed since this is outsourced to the ASP/Cloud provider. But a more subtle point might be that it needs to instead be pervasive – IT installed within business functions (so as to better contextualise Cloud Services within business practices). While IT services prior to the Cloud increasingly focused on getting the “plumbing” of the organisation correct (i.e. ensuring the email worked, installing ERP, networking the systems), with the use of Cloud services their role must be focused on improving the integration of Cloud services into the work practices of users  - focusing on both social and technical practices which can be supported or enhanced through IT.

We remain fixated on the CIO and IT department as our focus for Cloud Computing.  This seems odd. For what if this role of contextualising IT is better suited to users (who are increasingly technologically proficient particularly around Cloud Services (e.g. SalesForce / GMail)). With the Cloud users are increasingly powerful actors able to engage with, and even procure, IT infrastructure for themselves. How this might influence the role of IT within the enterprise is far from clear but it will certainly lead to new battles and new challenges.

References:

Carr, N. (2003). “IT Doesn’t Matter.” Harvard Business Review: 41-49.

Peppard,J (2007) “The Conundrum of IT Management” European Journal of Information Systems (2007) 16, 336–345. doi:10.1057/palgrave.ejis.3000697

How Cloud Computing Changes IT Outsourcing — Outsourcing — InformationWeek

via How Cloud Computing Changes IT Outsourcing — Outsourcing — InformationWeek.

This article provides a useful look at the outsourcing relationship and compares this with the Cloud contracts. In particular (quote) “Cloud computing blurs the lines between what had been conventional outsourcing and internal operations, and it will test IT’s management and control policies”.  The article points out that companies are not ready for the challenges of Cloud growth, with their survey suggesting only “17% say they directly monitor the performance and uptime of all of their cloud and SaaS applications”. with a “shocking 59% relying on their vendors to monitor themselves”.

This is indeed shocking. As companies contemplate moving their operations to the Cloud they are perhaps being led into a strong sense of security by the vendors promises. But as demand grows these vendors facilities will be stretched and less certain.

On contracts the article points out that a cloud computing contract is a hybrid of outsourcing, software and leasing and are major contractual commitments.

Finally the more obvious points about business strategy are made – pointing out that a cloud provider may be less interested in driving innovation and major technological change as they are not as aligned to a businesses core capabilities and objectives.