Evolve or die
How is the Cloud shaping the IT organisation?
Cloud computing promises lower upfront costs, greater business agility, and a reduced burden on internal IT management. Therefore, the CIOs of many large enterprises are now adding cloud-based solutions to their existing IT services. But before CIOs can fully leverage the benefits of cloud technologies, they need to understand the organisational impacts of this move. Indeed, as a result of cloud computing the IT landscape may become even more complex in the short term. This will create significant integration and operational challenges that will require changes to the IT capabilities and skills within the organisation in order to effectively manage this environment. To reach the full potential of cloud computing, CIOs will need to continue ‘getting the basics right’, as well as developing new capabilities in key areas such as business relationship management, technology innovation, enterprise architecture and sourcing, in order to truly realise the benefits that cloud has to offer and be positioned as a valuable partner to the Business.
The benefits of cloud computing are well publicised – it can lower upfront costs, increase business agility and lower the burden of internal IT management. It is, therefore, not surprising that CIOs are increasingly adding cloud solutions to their existing IT services. Yet, in order for the enterprise to realise these benefits, CIOs need to understand the potential organisational impacts of cloud computing. This is easier said than done, particularly in an evolving IT landscape that is creating ever greater integration challenges. Meeting these challenges starts with CIOs ‘getting the basics right’. Only from there can they target key areas such as business relationship management, technology innovation, enterprise architecture and sourcing. These are the areas that really bring out the value in cloud computing. Then CIOs can evolve their business to a position where cloud solutions are providing the real value that they originally promised.
Background and market context
Cloud computing is indeed a significant step in the maturing of software and IT infrastructure management. It has evolved from an original model where software was developed and infrastructure was procured and managed in-house, to one where it is possible to access and manage enterprise applications and data capacities (e.g. storage, archiving) through a simple internet connection, on a pay-per-use basis. The cloud has already proved to have changed the way start-ups, and small and medium enterprises (SMEs) operate by liberating them from the burden of upfront capital investments in technology and the employment of resources to maintain it. Such organisations are rapidly adopting the cloud-based on-demand capabilities in order to focus on rapidly growing their core business. A good example of this could be a start-up company saving thousands of dollars upfront using cloud services for setting up enterprise-level email and portal, collaboration and content management capabilities.
The impact, concerns and challenges
Clearly, this game-changing technology has impacted both start-ups and SMEs, but how about large enterprises? In light of these potential benefits, in large enterprises the vision of a significantly reduced – or nearly inexistent – IT organisation, with all IT infrastructure and applications management operated remotely somewhere in the cloud, has started to emerge. Although the concept is truly attractive, would this be realistic or just blue sky thinking? According to IDC, by 2015, about 24% of all business software purchases will be of service-enabled software, with Softwareas-a-Service (SaaS) delivery being 13.1% of worldwide software spending.
We are increasingly seeing business functions procure business capabilities through cloud SaaS solutions, sometimes without consultation with IT, especially for initiatives where time-to-market comes into play (e.g. new product development, market launches).
Our view is that the sole usage of public clouds for large enterprises is unlikely to become the standard in the next five to ten years. Instead, the typical cloud landscape will be shaped around hybrid service solutions, with internal hosting and private clouds being predominant, as well as selective leveraging of public clouds for less critical applications and data. Fujitsu America, an Infrastructure-as-aService (IaaS) provider, says the first step for many customers would be a managed private cloud provider that would still offer control over their infrastructure.
Mixed environments will last a long time, and IT outsourcing vendors are gearing up to help their customers manage the mix of traditional infrastructure and cloud platforms. We see the private cloud as a ‘stepping stone’ to the managed hybrid model.
That’s where cloud will probably go over the next five years. The market will head to more of a hybrid environment.
The reality is that such a landscape is likely to spawn new integration challenges. Companies within the same business ecosystem are increasingly willing to link their business capabilities via the cloud to provide greater services to their customers. It is the case for companies like Automatic Data Processing (ADP), a cloud-based payroll service provider, that decided to partner with a cloud-based provider of talent management solutions to offer a complete suite of payroll and related services to its customers. This strategy allowed the company to expand its business prospects and manage through the recession with flat revenues. But the path to success came at the price of significant integration effort.
As you look at cloud, as you look at outsourcing outside of your four walls, how do you get all these platforms to work together in an agile and secure way? We manage more than one hundred thirty products inside of ADP, and we really feel that the way we need to design and build our infrastructure is fairly unique in that we must enable the interoperability of all these different products 3.
Indeed, the lack of standardisation of cloud business services makes business processes management (through the implementation of process workflows, orchestration and rules management) effort-consuming and expensive.
Therefore, cloud-based integration processes and tool offerings will become increasingly important, and we expect to see more of these emerge from the market. The same challenge applies at the technical layer to operate cloud solutions in the most optimal way when they are run on different operating systems and interlink multiple data sources. FORFIRM's research shows that enterprise IT managers consider data and systems integration (as well as systems portability) as two of the biggest risks of cloud solutions, just behind data security, which continues to be the prime concern about cloud solutions since its early adoption stages. The FORFIRM IT Outsourcing and Cloud Computing Survey results are outlined below and show the perceived risks in the public cloud.
Since early adopters of the cloud have to manage these integration activities in-house, a number of cloud service providers are starting to realise the need to create cloud management service offerings that will make customers’ lives easier with end-to-end management solutions. It will be interesting to see how such services will mature over time, but today the integration effort remains an internal challenge to most companies.
The early impact of enterprise cloud solutions will be a readjustment of skills to effectively manage IT, rather than a decrease in headcounts. In the meantime, companies increasingly see the need to focus on their core business. Does IT Matter?, a Harvard Business Review publication, argues that “technology is becoming even more commoditised4” while companies look for increased operational efficiency and business focus to protect themselves from high growth start-ups and new competitors. Consequently, CIOs’ answer to this business challenge should be to provide greater business agility through cloud service offerings, whilst ensuring that IT operations and delivery run smoothly, despite the growing complexity of the IT environment. These two objectives are essential in order for the Business to understand the value-add of IT in procuring and managing cloud services.
Although we have often seen early adopters of cloud technologies deploy them and worry about the impacts at a later date (the key driver being the need to move quickly), the impacts are often more significant and profound than were ever imagined. Changes are required to the processes by which technology is provisioned and managed, to the skills and roles of the function, to the financial accounting for delivery and use of technology, to the relationship with the business, and to the value proposition of IT as a change agent. Embracing cloud can be as disruptive to the IT function as it is to the business.
In order to effectively manage this hybrid landscape (which encompasses legacy IT systems, private cloud services and public cloud services) and to align it with current and future business needs, the new IT organisation will need to be structured in a way that allows it to manage the entire spectrum of systems. Consequently, the cross-IT organisation skills will become critical to achieving an integrated technology ecosystem that supports an integrated Business. Figure 2, below, shows how we believe a typical IT organisation may be organised over the next few years, with key cross-IT skills spanning the entire enterprise.
Some skills that will emerge as critical include:
• Business relationship management – This will become increasingly important as the IT role shifts towards a more service-oriented one, advising the business on best technology options (cloud and non-cloud) and sourcing these in compliance with IT standards. The diverse range of IT solutions available will have to be translated into a coherent IT service catalogue – with clearly defined Service Level Agreements (SLAs) – that provides a greater choice of IT services to the Business, while maintaining simple and practical pricing and charge back models.
• Technology innovation – Many CIOs still face the challenge of business teams purchasing cloud services directly from cloud providers and bypassing IT. However, if IT plays a more proactive role in innovation, leveraging the cloud to provide technology solutions in a more agile way, more collaboration between IT and business teams will arise. IT will then be positioned within the enterprise more as a trusted business partner rather than a utility provider.
• Enterprise architecture (EA) – With the increased complexity of a hybrid IT delivery model, EA will play a key role in enabling business change, defining a coherent architecture and investment roadmap that encompasses internal and external IT provisioning, while resolving the integration and security challenges posed.
• Data security – In ensuring that security, regulatory and legal compliance needs are met, this capability will be essential to define and monitor how the enterprise data is managed across the cloud (not only within the enterprise’s close boundaries) and increasingly how service providers will protect the most valuable asset of the enterprise – their data.
• Quality management – Business solutions based on applications and data developed using different standards, models and formats will require increased efforts in systems and integration testing. Whether it is done in-house or managed by a provider, quality and testing skills will remain essential to deliver reliable and high quality solutions.
• IT service management – To achieve the same level of service as if IT services were provided using internal or non-cloud based systems, it will be important to have robust cloud monitoring and management processes in place.
• Vendor and supplier management – IT will have to effectively manage cloud service providers and vendors in order to ensure quality of service. Whilst the use of emerging cloud brokers will remove some of this burden, it will still require the IT function to have a good understanding of the marketplace and the technical and commercial models employed by the organisation.
Learning from the past – Outsourcing model’s impact on IT organisations
In this respect, a parallel can be drawn between the emergence of cloud computing and the IT outsourcing phenomenon of the past decade. IT outsourcing, came with its ambitious promise of better IT services through more qualified labour at significantly lower cost. Many CIOs were given the impression that their IT operations could be operated as a black box at lower costs, but soon realised that IT outsourcing brought its own set of challenges.
If these services were not carefully managed through mature IT service management processes and a strong retained IT organisation, most IT outsourcing deals were doomed to fail and either the level of service would deteriorate or the projected ROI would vanish over time. In fact, this often resulted in a backward movement towards in-sourcing or back-sourcing. Like IT outsourcing, the cloud is no silver bullet. Instead, it should be viewed as another evolutionary step in IT infrastructure and application management. Indeed, it is also the natural response to businesses that have always been looking to optimise cost and qualityn management of IT (and other non-core business processes) via the use of third parties. It is also the successive wave in the continuum of virtualisation of the technology stack, from physical infrastructure (e.g. servers, storage), to applications, and now, entire business support processes. However, the higher technical complexity of cloud computing will require a much higher level of management expertise and therefore, it is likely to have more impact on the capabilities required from the IT organisation to deliver it, rather than on the capacity (i.e. more qualitative than quantitative change).
...and looking forward
And, if the cloud is an evolutionary step, then the future vision may be collaborative cloud solutions. Such solutions will provide seamless integration solutions and services to customers sharing virtual business ecosystems beyond their enterprise. Cloud providers will adapt and start managing end-to-end business processes, and community or industry clouds may appear that provide a significant amount of supply chain and process integration. This vision requires a number of technical challenges to be overcome (i.e. digitalisation of business processes, interoperability standards and integration frameworks and tools), as well as the maturing of cloud providers’ service offerings. Nevertheless, CIOs should expect that over time they will span multiple enterprises and that the current span of control they enjoy will disappear. This underpins the need to establish the basic capabilities required to embrace cloud solutions and manage them effectively
Undeniably, the cloud offers greater agility in meeting business demands and if managed well, may lower IT cost. As a result, CIOs will want to use more of these services and IT will evolve. As the catalogue of IT services becomes greater, this will come at a price of greater management complexity, which in turn will drive the need for even more robust IT processes and adequate IT capabilities to support them. CIOs should build upon skills gained through the outsourcing experience, whilst developing new skills in cloud technology and related management techniques. In the near future the IT organisation will not shrink; instead, its role in the enterprise will evolve. We believe IT will have a stronger role to play as both a reliable manager of more complex technology services and a business partner focused on innovation and value creation for the business.