The Parallels Australia SMB Cloud Insights survey caught my attention. It's released as a pre-conference marketing promotion but it still contains some useful unbiased results.
The fact that it's benchmarked to similar surveys across the developed world is what makes it most relevant and interesting. It turns out that Australia is a poor cousin when it comes to cloud adoption, particularly in SMBs with 20 to 250 employees. For example, In other developed countries 49% of those report using hosted servers, whereas in Australia the figure is 22%. For smaller Australian businesses the uptake is about 60-70% of the other developed countries.
Of course "hosted servers" aren't really "cloud" - but managing hosted servers is what Parallels sells. The figures can be taken as indicative of the general attitude toward broader cloud services, with hosted servers being used as an example.
I wanted to post a question on the Parallels' blog, but what grabbed my attention was this, which I've never seen before:
WOW! Nifty.I've never seen that before. It helps both parties SEO-wise, to get the cross links, and I think it encourages a response (like mine!).
My questions
Parallels concludes that the strongest growth opportunity among Australian SMBs is targeting small businesses with less than 50 employees. What are the signals that would tell a service provider that such a business is getting ready to buy? I don't mean cold calling asking the direct question. But what, for example, would be the indirect question and signals - would it be mobile adoption or an application upgrade for example?
The larger, up to 250 employee, businesses were the real laggards compared to the rest of the world. They have bigger budgets, but the implied inhibitor is their own IT staff. What are the key inhibitions of the IT staff and how should they be addressed? Knowing that would open up a much bigger set of opportunities.
Is Australia lagging everywhere?
At the same time as Parallels noted Australia lagging in cloud adoption, I saw this report Security Risks Lead To A Third Of Australian Employers Banning Social Media. The biggest trends of our time, which will dramatically effect how business is done, are cloud, social and mobile. So our businesses are behind in cloud and banning social media!
Unisys Asia Pacific vice president and general manager of IT outsourcing, Lee Ward, said employers were "paralysed" by the BYOT challenge, "over the last 12 months, employers have moved from "blissful ignorance" to "paralysed awareness" in the face of consumerisation of IT", she said.
What does this spell out? Opportunity!
Opportunity opportunity opportunity
For those who understand the business shifts and gains from cloud, mobile and social this spells out an "unparralleled" opportunity to get well ahead of the pack.
I'll be interested to see more details of the final Parallels Australian report, which they are releasing at their APAC Summit.
Where do you think the best opportunities lie, in the less than or more than 50 employee SMBs?
Where do you see the best business opportunities at the convergence of cloud, social and mobile?
As enterprises adopt and adapt to cloud computing there is a need for a new governance role. This is on the basis that this shift is a business shift, with the potential to open up new business opportunities, and not just an IT infrastructure shift as it is commonly portrayed and discussed. This governance is the role of the Cloud Review Board, and here we lay out 5 key responsibilities, and where the Board fits in the corporate scheme of things.
In particular we focus on what's been missed in discussions about "cloud governance" to date - that it's not a technical issue- that's just more of the same - but it's a business issue and in particular an information management issue. Technology governance is level playing field. Cloud governance is value-additive and it's about having an effective governance framework that facilitates coordination between various IT and business teams.
While the potential of cloud computing in the core of the enterprise is to drive efficiency and flexibility in the deployment of IT resources, its real potential lies more at the edge in enabling business innovation and employee empowerment. That's already manifesting itself in many organisations with business units or groups within them taking their credit cards and buying IT services over the cloud.
If you think about "solutions" to that issue, which keeps CIOs up at night, there are two ends of the spectrum:
a policy banning any 3rd party systems without "high-level" authorization, and no company data to be stored in any unauthorized cloud system; or,
an embracing of cloud services, and a proactive effort to coordinate those which are deemed to be worth coordinating in terms of business benefits.
The first approach locks the stable door, but it has some challenges:
the horse may have already bolted - cloud apps are out there - so-called "shadow IT" - and will go underground, without an alternative this policy will discourage business innovation at the edge; and,
competitors who adopt cloud services proactively will be progressing up the learning curve.
Sometimes the restrictive policy is accompanied by the news that "we will be providing our own in-house cloud service" - so-called "private cloud". That's neat, it answers the needs of your in-house developers, and in 3 or 4 years you'll be able to provide them what they can buy off the web today with their credit cards. But this doesn't solve the problem of business users buying software as a service to solve active problems or to deliver new services today.
The proactive approach recognizes the potential of cloud computing and the reality that cloud-apps are going to make their way into the organisation, especially in those areas where IT has been unable to respond or deliver the required functionality. It may sound like encouraging IT anarchy, and perhaps that is part of the revolution which cloud offers.
It's the old story, if the business users feel like they have been being held hostage to IT, then they'll break away. On the other hand if there are positive and constructive relationships in place then there'll be coordination as users approach cloud apps.
Whatever happens there is now a need for a new IT oversight or governance role, what I call the Cloud Review Board.
Purpose
The Cloud Review Board (CRB) exists to optimize the diverse and disparate investments the organisation is making in cloud computing and applications and in particular with respect to information assets.
Why information assets? Because those are the key to what cloud computing is actually all about. While the provision of IT infrastructure as a service, across the web, is a tremendously complex and challenging ambition it is not what makes the cloud so fundamentally important as a new business catalyst. You see the business power of cloud computing isn't actually the "computing". It's the data, the information!
Think of it this way, Scott McNealy, co-founder of SUN Microsystems (now part of Oracle) was known for saying "the network is the computer". That was a paradigm shift in thinking at the time, when mainframes and central processing power were the focus of attention and the network merely connected terminals to this central power. SUN was the "dot" in ".com" and its gear powered a lot of the initial Internet build-out. That was Web1.0.
We've moved on the the point where the Internet is industrial and it's no longer just "the computer" but is the database. The Internet is the database.
"Cloud computing" provides an industrialized approach to gaining access to that database. And by the way that doesn't mean just the data you own, that's the whole point. You gain access to everyone's data who gives you permission to have access, whether it be Facebook or another firm's SAP system.
Just as mainframes still exist, and provide lots of horsepower in and connected to the Internet, the Internet has also well and truly already become the computer, as SUN predicted. Each step doesn't negate the former, it's just that they don't represent the mental models needed to drive business innovation forward. The Internet is the database is now.
And that's why I believe that the key purpose, or goal, of the Cloud Review Board should be to effectively govern an enterprise's information assets.
Process
I see 5 key objectives for the CRB - the agenda items for its meetings:
Security. This agenda item is not about whether you can or can not put your data in the cloud from a legislative, privacy or location perspective. That's a decision for a task group which presumably has a reasonably clear outcome, and one not based on FUD but fact. You're here because there are some things you can do in cloud. This agenda item addresses the collation of what information is out in the cloud, the business importance of that information, and what backup and recovery plans are in place. In other words the item is to discuss the risk/reward of securing information in the cloud.
Data synchronization. Of all the projects we have in the cloud and those apps in-house, which information needs to be synchronized between them, who owns that information, and how is it governed?
Corporate view. Of the synchronized information, how is corporate view being achieved which is consistent, complete, accurate and timely? Who is the owner of that view?
Platforms. Of those cloud applications which are being used or proposed, which are built on architectural platforms, which if exploited more widely, could deliver us competitive benefits in the leverage of our information assets? How do those platforms fit into our extended business systems architecture and platform architecture e.g. Software Oriented Architecture and other middleware. This is where platforms like salesforce.com's force.com have an advantage over traditional data silos or standalone hosted apps. With an open design and readily available APIs, platforms like salesforce.com's spur application ecosystems. That idea of "application ecosystem" is key - that's the lever. Besides salesforce.com there's a multitude - Jive, Google Apps, cloud Sharepoint, LotusLive, Oracle's Beehive etc etc. Consider anything with an apps marketplace as a platform, and yes that includes mobile phone platforms. And don't overlook cloud messaging platforms and cloud VAN/EDI platforms. Where a suitable ecosystem is in place, businesses are able to leverage those platforms to quickly offer new solutions to new or old problems in new or old markets. What's on offer to you?
Projects. This agenda item reviews all internal development and systems acquisition proposals and asks why are we not doing this in the cloud, or harnessing a cloud-based application to solve this problem? In other words which parts of our business systems architecture is best in the cloud, and how are we tracking in making the transition? And the reason we are asking this, in relation to the Review Board's goal, is because the Board needs to know if these new projects would be better in the cloud to harness the platforms discussed in point 4 above. Would they therefore be able to yield greater potential and value if they were part of our cloud ecosystem going forward?
At this moment, I consider these 5 agenda items to be the most crucial concerns of a Cloud Review Board.
Payoff
The key payoff from an effective Cloud Review Board that it enables an organisation to proactively take advantage of the cloud shift in a way which optimizes business outcomes, at a known level of risk. Most importantly it allows organisations to leverage the Internet as the database, while maintaining data integrity for the purpose of competitive advantage.
Where the Cloud Review Board sits
The make-up of the CRB should not be dominated by IT folk. It should be IT-literate, information aware, and business-oriented folk, and the CRB itself should be aligned and perhaps report to the business group or steering committee governing overall IT strategy and business systems.
Typically a "Business Systems Steering Committee" will comprise the business owners of all the key systems. The Cloud Review Board would be a subcommittee of that Committee so that it would not become technology-focused for the cloud's sake or focused on technical cloud governancebut a group that's responsible for supporting business and business information in their journey into the cloud.
Conclusion
While there could be many variations of a Cloud Review Board, and its priorities will change over time, it's most important that it not be bogged down in dogma, philosophy and arguments about whether the organisation can do cloud or not due to legislative, privacy, location or governance issues. That's not the role of a Cloud Review Board (that role is a much wider one which has to be driven from the very top through a very focused and tight cross-functional task force).
I believe that for the foreseeable future the goal of a Cloud Review Board will remain as this: to effectively govern an enterprise's information assets.
Do you have a Cloud Review Board or it's equivalent?
Is its role to govern the information assets?
Do you think such a Board is necessary or unnecessary?
Virtual Ark Executive CEO & President Marty Gauvinrecently described Cloud Computing as the 3rd Generation of outsourcing, and it's a useful way of looking at it.
Marty called the 1st generation "your mess for less" which is an apt description and pinpoints how service providers made their money.
The 2nd generation was "selective sourcing", sometimes called "strategic sourcing" although it was anything but - more on this below.
And "cloud" is the 3rd generation, and it's potential, in part, will be shaped by the previous generations of outsourcing and the previous generations of people on both sides of the deals.
Here's my take on the big picture evolution of outsourcing.
1st Generation - Your mess for less
This is the period 1970 to 1990. Marty's description exactly fits the perfect qualified opportunity for a service provider seeking a 1st generation outsourcing contract. The more complexity and the more mess the more the service provider can truly save, and hence better margins, and hence the desire for as long a contract as possible.
This was a golden era for both EDS and IBM in particular. IBM had a huge amount of government business and the Space Program, and EDS led in large-scale outsourcing for the commercial sector. Both had fabulous methodologies and top gun project directors and managers. In the US CSC was strong and DIGITAL had a strong core SI group with sound methodologies (later destroyed by Compaq), Accenture built a global presence around BPO, and ICL had some general outsourcing business in the UK (which formed the nucleus of Fujitsu's later move into the sector), while current day players such as HP, Fujitsu, DiData had no material presence nor capability.
The successes were many, although the failures attracted the media attention because it has to be remembered that the Outsourcers were the enemy of the techos at all levels, from CIO down. The IT media wrote for the IT folk and stories about outsourcing failures caused a lot of glee in the IT sewing circles. The reality was that companies that had a mess got less of a mess for a lower price, they got better service levels, and in most cases benefited from economies of scale.
The failures were legend and well known, if not over-reported. The tenure of these reports was universally "IBM / EDS / CSC screwed up" whereas the truth is that the headlines should have universally read "Company managers fail to manage - again", with one major exception which I will discuss. The fundamental issue in the failures was that companies abrogated their management responsibilities, they threw out the baby with the bathwater. Through poor judgement, lack of understanding, and an obsession with cost-reduction as the principle goal they willingly destroyed their own abilities in IT strategy, architecture, performance management and didn't enhance their contracting and commercial skills.
Some outsourcing firms played up to this, to their discredit, with the full knowledge that the customer was destroying their ability to manage the contract and wanting to take advantage of this. I think that it is an unfortunate fact that EDS was worst in this regard, the UK Internal Revenue Service contract being their ultimate Waterloo.
Customers also often complained about lack of innovation from the outsourcers, but hey suck it up! If you understand anything about commercial reality then you can't back people into a financial corner and expect spontaneous investment during the tail end of a contract cycle. It's easy to build in an intelligent business innovation contract component, but you have to have an intelligent customer!
2nd Generation - Revenge of the geeks
This is the period 1990 to 2010, and here's the setting of the time around 1990 - firstly bad news is bigger than good news and 1st generation outsourcing had a groundswell of bad news, and I won't argue that there were lots of candidates, even though I assert it was overall a generally successful era for those clients that had competent management skills.
Secondly, outsourcing wasn't going away, which in itself became even more threatening to the geek IT managers, and public service IT managers, and who then fueled the fire of the horror stories. Thirdly, the fatal flaw that many of the 1st generation deals were led by the clients' CFOs or accountants who took an uninformed cost-cutting approach provided the platform for the revenge of the geeks.
That revenge was so-called "selective sourcing". The geek CIOs and IT managers got control back, the 1st generation Fear Uncertainly and Doubt worked, without doubt! The financial guys lost their role in outsourcing precisely because most were out of their depth.
Having wrested control back the geek teams announced "selective sourcing". Selective sourcing was simply bundling up slices of technology and getting bids from small guys as well as the large outsourcers and parceling things out in technical packages which the geeks understood. I'm talking about "the help desk" or "the servers" or "the network" etc. It has little bad press, because why would the IT press promote bad things about the geeks being in control?
It's certainly generated huge growth for the smaller and mid-tier outsourcing firms - the reason being that it's all commodity stuff and while the big guys should have been able to compete on scale often the geek terms and control conditions meant that the big guys just had too much overhead and high costs to be able to win the small commodity chunks of work. Smaller players were "more flexible" which was really just a feint for "I'll replace your people with my cheaper people".
This period is sometimes called "strategic sourcing" which is only a sick joke as it is anything but strategic. It is completely tactical, and mostly lacking in accountability and almost always lacking in any connection to business KPIs. The Pharmaceutical industry is an industry where outsourcing is widely practiced across many activities. They have global benchmarks which show that the top performing companies incur management costs of about 5% of an outsourcing contract's value, and the poor performers about 25%. An IT group with multiple sourcing contracts incurs these overheads but in the IT world they are almost universally hidden, just one of the hidden secrets of the geeks revenge!
The post-2000 boom in commodity hosting services has been a positive outcome of the long journey of outsourcing, however overall I'd characterise this 2nd Generation as the lost generation for business in gaining the business benefits of outsourcing.
Note: there was a version of this 2nd Generation called "Out-Tasking" a term coined by John Chambers CEO of Cisco in about 2001. That was really a very business-based selective approach to a kind of BPO, and it had a lot of merit, and still has a lot of merit as an outsourcing option. Unfortunately in the big scheme of things it is rarely adopted.
3rd Generation - Cloud - Like the misty rain that falls softly, but floods the river
This is the period 2010 to potentially 2030! Without going into what cloud is and isn't and whether it is the same old thing relabeled (which it isn't!) this generation of outsourcing varies from the past in a few key ways. Before I note them I'll just say that I am not talking about "private cloud" here, which besides being an oxymoron is just a sales ploy to capture the last retreat of the geek CIOs of 2nd generation outsourcing. That's the subject of another post. I'm talking about cloud as access to resources that a customer does not own - what is sometimes called public cloud.
The three differentiators which I see, in contrast to previous models, are:
Technical and service agility - more rapid provisioning and less commitment to infrastructure;
Business agility - less constrained by contracts, by IT, and by capital;
Logistics agility - one manifestation being instant geographic coverage.
So in a nutshell cloud is much less in terms of contracts, constraints and capital, and much more in terms of speed, scale and service levels.
How does the past effect the future?
The 3rd Generation is going to ride on the back of a collapsing 2nd Generation, and in fact be propelled by it. In one of the great ironies the fact that the geek CIOs won control of the 2nd Generation will accelerate their undoing by the 3rd Generation.
There will be a last gasp Fear Uncertainty and Doubt FUD campaign, aided and abetted by the "private cloud" sales teams who will be desperate to make their last sales and will back the geek CIOs to the corporate hilt. However I predict that over the first 5 years of this potential 20 year 3rd Generation phase we will see a general collapse of these efforts. There are a number of reasons:
Cloud economics are undeniable and unobtainable by 98% of inhouse operations;
2nd Generation "selective sourcing" has sliced and diced outsourcing into commodities which are easily compared to cloud pricing and service levels on that basis alone 2nd Generation cannot win;
As cloud moves up the platform stack and interoperability, integration and migration options open up then it becomes even harder to resist;
The competitive edge of firms who adopt cloud will expose those CIOs who are resisting, and in particular the fallacy of the "private cloud".
What's the greatest constraint to all this - the FUD of privacy and security. Always the first question and the greatest friend of the geek CIOs. It's the same question that's been around since the 1st Generation, and will take the same time, pain, and frustration to move through the issues with those customers who are worth the effort.
The 2nd Generation CIOs and IT Managers have trained their business owners to believe that they have to live with all the "enabling IT" and to put up with a host of cumbersome necessities. Cloud, over time, will wipe those fallacies away.
On our side are people, and the fact that the line between consumer and corporate IT is blurring, perhaps with lightening speed due to social media, but with perhaps a 5 year lag generally in terms of reshaping expectations of IT and IT management within firms. The private experience is universally dominated by cloud, take out Outlook, which means that in the end the FUD won't work! The result will be that IT Governance will continue to evolve in a natural way to embrace specific cloud issues - it's no drama!!
My conclusion is that while the 1st Generation captured a small business base, and the second a wider base albeit with fewer business benefits, the 3rd Generation is set to capture a massive business base and in the process will rewrite the IT Management/CIO world not to mention the channels and distribution world.
Gartner projected in March 2009 that sales of cloud computing services would almost triple over five years, from $56 billion in revenues in 2009 to $150 billion in revenues in 2013. I don't know the exact number but that's probably about 10% of the available market, and I can see it really taking off from about 2015.
Those business which get there first, and those ISVs and service providers which adopt the quickest will be the winners. This IS the biggest revolution in 20 years. As Dr Strangelove said, stop worrying and learn to love it!
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