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When Worlds Collide: Cloud Computing and Corporate IT

The recent recession has prompted many executives to more closely examine the way they invest in, manage and innovate the business. One particular area of focus is IT, where a new wave of growth and transformation is becoming prominent. There's no doubt you’ve heard the buzz about cloud computing, a way of accessing and using business infrastructure and applications over the Internet. Think Apple iTunes, Google’s Gmail, Facebook, Netflix, Amazon.com, online retailing or online banking in the consumer cloud market.

These days, senior executives, strategy leaders and even corporate boards find themselves pondering the following key questions: What does the trend mean for our company? How can it change the performance trajectory of our business? How should we restructure our IT function given the maturing of the cloud model in the next one, three or five years?

At a more tactical level, forward thinking IT and business unit leaders are asking: What should my enterprise cloud computing strategy look like over the next one-to-three years? What is the business case for my organization? Should I custom-build my own cloud? Should I buy and configure a cloud? Or should I simply outsource and rent a cloud? The volatile economic environment is pushing organizations to comb their IT budgets looking for opportunities to lower costs.

Bundled, Utility-Like Services

At the core, cloud computing is the standardization, commoditization and industrialization of IT, in which applications and infrastructure are procured in the same way electricity is purchased from utility companies. You pay as you go and get business functionality — sales, human resources (HR), finance or industry specific (i.e., retail) — through a Web browser or a mobile device.

As cloud computing matures, it is quickly becoming the de facto model for the consumer market. Most of what we do as consumers tends to run in the cloud. Recently, the trend towards the cloud has accelerated in large, mid-sized and small organizations. It’s more than likely that your sales organization is running a cloud-based sales force automation application, such as one provided by Salesforce.com. Or maybe the HR department is deploying an employee performance management cloud application, such as Workday or SuccessFactors.

The utility-like software and infrastructure services model is experiencing dramatic growth on the enterprise front. According to International Data Corporation (IDC), the market for cloud-based solutions (cloudware) in the $1.5 trillion IT industry is set to grow six times faster than the overall software market. The demand for enterprise cloud computing solutions has grown — even during the recession — as private and public sector organizations learn from the consumer market and adopt new ways to reduce IT capital costs, increase application quality, reduce time to market for new innovation, and even improve employee productivity via new tools.

There is no doubt that cloud computing is creeping through corporate IT departments. As with most cutting-edge innovations, it starts out on the fringe of the organization with a few mavericks and then accelerates into the core as business value becomes clear. But, as with any technology innovation, cloudware will create suboptimal value in a large firm without a coordinated business strategy.

Defining Enterprise Cloud Computing

Service Models	Deployment Models	Five Characteristics
Software as a Service (SaaS) Platform as a Service (PaaS) Infrastructure as a Service (IaaS)	Private Cloud Public Cloud Hybrid Cloud Community Cloud	On-demand self-service Broad network access Resource pooling Rapid elasticity Measured service

Developing a Business Case

What is the business case for cloud computing? Where is the ROI? What are the hard-versus-soft cost savings?

Depending on the business, the benefits of transitioning from an on-premise environment to the enterprise cloud tend to cluster around the following factors:

• Reduction of capital spending (moving from fixed to variable costs)
• Shifting IT budgets from maintenance to innovation
• Better leverage of “platform as a service” development environments
• Anytime, anywhere mobile access
• New cycle of business process improvement

For larger organizations, the cloud is not just about reducing IT spend. It’s about reallocating the IT budget from maintenance — such as keeping servers running and performing upgrades — to actually delivering much needed innovation to the business. For many years, CIOs with large global operations have wrestled with the problem of reducing 70 percent of a typical IT budget spent on maintenance with very little success. Similar to the services outsourcing model, the cloud provides a way to move from capital expenditures to operational expenditures.

The result of 70 percent allocation of IT resources to “run the business” is that a substantial gap is opened up between the business growth goals — time-sensitive new products to support growth or business process improvement — and what IT can deliver. Cloudware aims to change this dynamic, because businesses are able to reprioritize and reclaim some of their IT application operating costs by making the transition. This means fewer servers, databases, backups, failover, patches and upgrades. The cloud can free up IT resources to move from an operational role to a more strategic one.

A Growing Challenge

The reality is CIOs are having a hard time keeping pace with business demand for new applications. After spending the past decade outsourcing and offshoring labor, most firms have successfully lowered their cost structures. But the ability to design, develop, provision and deploy new world-class digital applications quickly has not changed much. The problem becomes clear when you look at the torrid pace of innovation being set by market leaders as we emerge from recession. Bringing new technology to market or responding to market leaders with differentiated business applications, functionality and processes is a growing challenge. Replacing labor intensive software development models with robust cloud PaaS development platforms is emerging as a significant execution trend.

The big driver of cloudware is the demand from end-users to access applications securely anytime, anywhere through a Web browser — and, increasingly, through smartphones, tablets and, in particular, iPads. When your applications are accessible through a browser in real time, everyone is operating on a “single version of the truth,” no matter where they are — corporate, subsidiary or offshore location.

The modern cloud applications are designed from the ground up to run over the Internet. Not only does this transform how customers and employees interact and collaborate, but it also lowers the capital costs to deploy, run and maintain the applications. Trying to replicate these cloud applications internally, which no doubt some IT organizations will try to do for a variety of reasons, with security being a dominant one, is going to be extremely expensive and time consuming. Replicating an Amazon.com cloud infrastructure capability within the four walls of an enterprise may be cost prohibitive. Furthermore, it would take years of hard work, even if you can find the necessary talent, with no guarantee of success.

For some types of applications, SaaS is already becoming the default architecture. No modern enterprise is looking at a CRM implementation or upgrade decision today without considering a cloud-based solution from Salesforce.com. The same applies to new global data center investments. Businesses are unlikely to invest in new capital intensive multimillion-dollar green data centers without considering the mega datacenters that are now available from a variety of vendors like Verizon, Microsoft or Amazon.com. Lease before you buy or build. The game has changed.

Is Enterprise Cloud Computing Right for Your Business?

The answer depends on the context. In a company with applications that have mission-critical computing, proprietary / legacy applications and data security requirements, cloud computing may not be feasible. For instance, large mega-banks, operating under complex legal and regulatory requirements, may not be good candidates for a public cloud, but a private cloud could be the right strategy for highly confidential data. For rapidly growing retailers that store large amounts of non-private data, such as catalogs, or those that have large, unbalanced computing loads, public clouds offer an opportunity to outsource potential inhibitors to growth.

With any new technology, misconceptions and myths abound. There is a lot of “cloudwashing” taking place. New vendors are rapidly emerging and traditional vendors are frantically trying to reposition their existing offerings as cloud solutions. So buyers need to beware and have a trusted adviser they can depend on to navigate the complexity.

The bottom line is that cloud computing is a catalyst for restructuring IT in most organizations. The phenomenon of moving infrastructure and / or applications into the private, public or hybrid cloud is all too real, and is beginning to change IT as we know it. There are concrete measures companies can take to redirect the road to success, as well as steps that currently high-performing companies can take to reach even higher levels. Developing a clear strategy with key stakeholders, defining and conveying the multi-phase roadmap and executing the transformation are critical to the success of any cloud computing implementation.