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Cloud is shorthand for a quite revolutionary set of new ways through which the capabilities of contemporary Information and Communications Technologies (ICT) can be delivered, accessed, and exploited. In practice the heartlands of the Cloud are services that are sufficiently accessible over the internet, over the (mobile) phone/smartphone/tablet, and are sufficiently easy to use, that people use them, and increasingly embed their use in their everyday private lives, social lives, work lives—and are innovative in that use.

The prime language of the Cloud is Services—the pioneers in the Cloud have been consumer services ventures (think Amazon in the early internet-based e-commerce of books, and Google in search). Addressing the opportunity of multi-millions of customers, these pioneers exploited new means of operating their data centres that sharply drove down the cost of each individual transaction, sharply raised the flexibility & responsiveness of their data processing operations, and leveraged substantially higher asset productivity from the data processing technologies they invested in. Consumer services thinking feed a surge in the creative innovation of new services-based business models. Thus Amazon exploited the compute services capabilities that underlay its e-commerce operations to offer compute services themselves as consumer services, to be consumed as required (‘on-demand’) and paid for ‘as used’. No commercial term contracts or volume commitments. By mid-2013 Amazon’s sales of compute services had a run rate that was 5x the combined sales of open market compute services offered by its next 14 competitors combined—a roll call of the older mainstream ICT suppliers such as IBM, HP and CSC.

The Cloud presents a very different world—underlying the Cloud may be a major technological shift, but the essence of the Cloud is in new behaviours, new cultural contexts for how we all live and work. We source services from the Cloud—but the best of these services are those designed from the heart of the user experience—and because the maturing Cloud offers great diversity in its operations, the user is now more clearly in the driving seat, biasing towards services that respond effectively to their needs, dropping those that do not. The essence of the Cloud is not a technological agenda—it is a behavioural and cultural agenda, a new way of thinking, new ways of doing.

There is a structure to the Cloud—the roots of the commerce of the Cloud in services has led to an analysis of its developing market segments in service terms: thus Infrastructure as a Service (IaaS) and Software as a Service (SaaS). The arrival of more consumer-oriented mobile technologies (mobile phones, smartphones, tablets…) has created the jargon of apps (for applications).

A more fundamental analysis of the technology and the commerce of the Cloud is to consider it as two distinct types of services ‘offer’. The first is the conglomeration of services that relate to delivering the underlying Cloud infrastructure and its operations—thus data storage, data processing, data networking and their integration as technical platforms. This is about the management of complex data centres and their integration into telecom data networks—essentially manufacturing operations, usually on a grand scale. This is about capital intensive ventures that require major investment in data centre and telecoms assets. In contrast the second type of services ‘offer’ lies in the creation and delivery of front-line applications (apps) & services off these platforms. Here there is greater opportunity for smaller to medium sized ventures that can exploit detailed knowledge of/intimacy with specialist market segments, consumer behaviours and preferences, the detailed practicalities of the enterprise operation. These are market know-how & people intensive rather than capital intensive ventures

The Cloud is for real now! The (UK) Cloud Industry Forum’s June 2014 white paper ‘Cloud UK – The Normalisation of Cloud in a Hybrid IT Market’ details the results of the fifth annual survey of how the Cloud is perceived, and trends in how it is being exploited in practical terms in the UK. The survey draws on the judgement of 250 senior IT and business decision makers in major enterprises, small-to-medium sized businesses (SMBs), and public sector organisations. The size, quality and diversity of the 250-strong panel surveyed ensures that the key insights gained each year are statistically sound—and so also any year-by-year trends that emerge.

The picture is of a reality steadily gaining ground (‘Does your company have any hosted or Cloud-based services in use today’ scored 48% ‘Yes’ in 2010, 78% in 2014): but one that is still in its early days (‘How many different Cloud-based services does your company use today?’ scores 40–50% for a single service, depending on company size: around 70% for two services: much lower percentages for higher multiples). The pointers are for onward development. ‘Does your company include consideration for Cloud Services within its wider IT strategy?’ elicits a 79% ‘Yes’ score. ‘Do you consider infrastructure refresh to be an opportunity to adopt alternative deployment models such as Cloud IaaS/SaaS or third party hosting?’—a 71% ‘Yes’. And, looking to the longer term, when asked ‘Do you foresee a day when you will move your entire IT to Cloud-based services?’ some 45% could see this as a potential outcome.

So the Cloud is for real now, and it is starting to impact how many businesses operate and deliver their market ‘offer’—and improving the competitiveness of that offer. The up-front factors that argue for adoption of Cloud services are practical ones (sharply reduced operational costs, significantly increased business flexibility). But two key words that are regularly used on the context of the Cloud need to be taken seriously: transformation and disruption. Transformation in how a business operates can have major impact on its balance sheet and its bottom line—and on the competitiveness of its business in its markets. Disruption of those markets by the arrival of competitors who ‘play the game very differently’ through exploiting the Cloud. This is why you should care!

The ‘transformational’ word can get overworked when it comes to the Cloud—but a more forensic approach pays off! There are in practice three transformational plays in action currently—and each, in turn, provides insight into how you best address the Cloud.

The first is transformation in how we live our lives, do our work: how the enterprise operates, how the public sector delivers. Here is the impact of social media (think services such as Twitter & texting), of apps on our smartphones that present new options for living our daily lives (is there a taxi close by?), of back- and front-office services that speed how we do our business (think Salesforce CRM—Customer Relationship Management), of new market places that speed commerce (think the UK Government’s G-Cloud). Legacy enterprise business systems, complex & tightly integrated, expensive to run, and expensive to alter, can be transformed or re-assembled as loosely-coupled concatenations of sourced services, with much lower cost to operate, and much easier to re-configure, especially through service integration. We can now innovate more rapidly, because all the tools needed to assemble, enable and speedily grow a new venture at low cost are there as services ’on demand and as required’. The reach of the world wide web in and through the Cloud speeds the spread of awareness of what new requirements & opportunities are—and speeds the marketing of the new into its most promising market places.

The second is transformation of vendor business models and the services they offer. As noted above (there is a structure to the Cloud) the impact of consumerisation of the service business model underwritten by high efficiency data centres, as pioneered by Amazon and Google, is forcing a competitive transformation of how vendors seek to earn sustainable margins. A simple approach is to read the Cloud in terms of two distinct business models:

  • The ‘Weetabix’ business model: highly automated manufacture, packaging and distribution of a totally standardised product (/service)—capital intensive, with a focus on endlessly building the experiential in the manufacturing processes. [A breakfast of two Weetabix biscuits for ~20p!]
  • The ‘Wolseley‘ business model: top end of the market brasserie, a diversity of choice (a menu of 60 items +) with waiters and kitchen staff expert in delivering a top class breakfast experience—people intensive, with the focus on client intimacy and endlessly building the experiential in excellence in customer service. [A breakfast at the Wolseley costs >£20!]

The first relates to the emergent market place for Cloud platforms—highly automated integration of data storage, data processing, and data networking. The second relates to the Saas/Apps market places underwritten by human expertise in (/intimacy with) the workings of specific end markets, so called ‘verticals’. The key reality is that the two business models are so different in management terms that no one vendor can succeed in both. So competitive pressures in the wider markets are forcing the pace in vendor business model transformation. The challenge to the older and long established ICT vendors is—‘what business are they in in the Cloud, ‘Weetabix’ or ‘Wolseley’? The strategic choice has to be made.

The third is transformation of ICT operational delivery in the enterprise. All three key elements of ICT core operations can now be expressed through, and as, software structures: data storage, data processing, and data networking. This, in turn, enables application of the powerful technical tools of virtualisation—in which the ever lowering unit costs of managing a single byte (Moore’s Law at work!) means that an ever growing ‘wrap’ of meta-data becomes economic—and that in turn enables increasingly sophisticated manufacturing operations to be elaborated and delivered. The in-house data centre (some or many servers strong) with all its associated costs and requirements for cosseting is replaced by a virtual and flexible construct delivered from within a major multi-tenanted data centre that has multitudes of physical servers managed to operate as many-multitudes of virtual servers, continually optimising their operations in real time.

This is the emergence of highly virtualised, highly automated manufacture and distribution of services. The classic heartland of the ICT industry has not seen itself as in the manufacturing business—but that is what it now is. This reality is as applicable to in-house compute and wider ICT operations—the domestic Cloud—and the Cloud Industry Forum annual surveys identified above indicate that many enterprises are developing hybrid blends of domestic Cloud and externally sourced Cloud. The technology increasingly enables, and practical considerations then shape, this line of attack.

One vital issue in addressing the Cloud is Assurance. Consider the classic Board-led audit process that has encompassed operations dependent on/affected by an enterprise’s ICT operations, in-house managed & actual physical ICT assets. Even where outsourced the audit team could still identify specific assets and operations to audit. But what in the emerging world of the Cloud? How can a Board scope the risks inherent in virtual supply chains of Cloud-sourced services? How does it build confidence that business continuity is secured—that effective disaster recovery is in place? Is each step in the virtual supply chain secure in the fullest cyber security sense? How safe is the enterprise’s data—and what happens if there is bankruptcy somewhere along that virtual chain? And what about data privacy—in exploiting these new virtual services’ supply chains how can a Board be confident that its sourced operations are compliant with data privacy requirements at each stage?

SO—how best to address the Cloud? The factors that argue for adoption of Cloud services are all very real (reduced operational costs, increased business agility…)—but the practical factors that shape the actuality of that adoption are equally very real. A start-up company, free of inherited legacy systems, starts its operational life with a clean sheet of paper—today it can shape its destiny with services sourced from the Cloud right from the start. In contrast, a long established enterprise, with an inheritance of tightly integrated legacy ICT systems based on in-house computing operations, will need to plan, and invest in, a transformational journey of some complexity and cost.

The word journey is rightly chosen, as there always will be a starting point (the status quo) and a destination—and, in the context of the triple transformations outlined above, there are significant choices to be made both as to destination, and the nature/scoping of the journey made to get there.

The scoping of both destination and journey is a business issue, and not a technical issue; a Board business project, rather than a functional/technology project. The nature of the new service capabilities potentially sourceable from the Cloud enables transformation of how the business operates both out in its markets and internally—the issue is what transformation should the business drive for? A well-established venture in the foreign exchange retail business, with an inherited complexity of two dozen legacy HR systems (the consequence of an active acquisition policy) not only rationalised the two dozen to a single global Cloud-based HR system, but transformed how each employee could now actively manage their own performance & career development—a behavioural & organisational cultural transformation deliberately shaped as the destination of this company’s journey into the Cloud.

The journey into the Cloud involves real change in many functional roles. The IT roles, in particular, shift from a long established focus on responsibility for ICT systems maintenance, operation and development to responsibility for the management of service sourcing, services integration and exploitation—and assurance, The more effective Cloud services are designed from the users’ point of view, so it will be the marketing and sales folk, as an example, who may take the leads in sourcing CRM (Customer Relationship Management) capabilities. In this environment clear data policies that apply across the enterprise become vital to avoid the duplication of i.e. key client data between the marketing and the finance folk.

The issue of assurance in this virtual world. In shaping both journey and destination there needs to be clear thinking about how the key challenges of systems security, data protection and privacy, wider issues of legal and regulatory compliance, disaster recovery and business continuity etc. will all be addressed.

This is the essence of how best to address the Cloud.

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