Why cloud? A less expensive version of IT as it now exists isn't the answer. In this research, we discuss the destination for the cloud and what CIOs need to think about en route.
Table of Contents
In Gartner's CIO Agenda Survey, published in January 2011, CIOs named the cloud as their top technology priority for the year. But why? At this point, CIOs have invested heavily in the platforms and skills that have brought them this far. Many CIOs still struggle, after years of enterprise investment in IT, to show that IT offers value, not just cost, to the enterprise.
The cloud is a technology discontinuity that, within the next 10 years, is likely to dramatically change IT organizational missions, structures, roles, skills and operations. To put it another way, the cloud will change IT as nothing before it has. It may end up removing the last vestiges of the captive IT organization that "owns" its enterprise as surely as the enterprise owns IT. CIOs are right to start addressing it now. They can't afford to be caught unaware by it, no matter how and when they choose to incorporate the cloud into the enterprise.
However, even if the cloud appears to be inevitable, why cloud? At the enterprise level, where CIOs operate, what's the point? It's not about significant cost reduction, despite hopes to the contrary. As Kurt Potter shows in his disruptive research, "Cloud Computing: Economic, Financial and Service Impact on IT Planning Assumptions," most enterprises will increase their consumption of IT via the cloud, which will raise overall IT costs, not lower them, and introduce new risks for the enterprise and the IT organization. We see a hint of that now in the growing uptake of the cloud by users bypassing IT organizations to acquire IT services at what seems a bargain price, significant performance issues notwithstanding. Some of the potential consequences of this trend are described in "'Black Swans' Are Sure to Fly in the Public Cloud."
For established enterprise software vendors, the cloud introduces a range of significant issues. Cost reduction via the cloud for these vendors means massive reinvestment in profitable products to make them cloud-ready, and deep uncertainty about whether such products can be priced at a point that will continue to ensure the lush margins to which the industry has grown accustomed. The vendor situation is mirrored in the massive investments users have made in legacy systems that must be rewritten or replaced to take advantage of dynamic allocation of resources. If cost reduction alone won't justify the massive investments that enterprises and software vendors alike must make to fully adopt the cloud, then why cloud?
One answer is offered by Jorge Lopez in his research describing Business Model Platforms (see "The Competitive Advantage of Cloud Through the Business Model Platform" ). This is one manifestation of "capability on demand," which was discussed in "On Demand: From Capacity to Capability." The justification here is better plus faster, not cheaper, and faster is defined in terms of time-to-business, not time-to-procure or time-to-install. (And of course, speed in any dimension comes at a price.)
The implications of such platforms for enterprise software vendors is as clear as it is ominous. The arrival of business model platforms will represent an epochal change in the industry, not to mention the history of commerce. Partha Iyengar's "Case Study: WinHire Leverages the Cloud to Establish a New Business Model Platform" shows one such platform in its early stages. There will be more.
"How IT Can Work With (Not Against) the Cloud" describes practical approaches for CIOs to use right now to prepare their enterprises and the IT organizations to take advantage of cloud. At the same time, they can improve the value delivered by the IT organization, as well as relationships with internal and external stakeholders.
Value chains evolve in every industry, and IT is no exception. This evolution, like others, will produce winners and losers. The cloud is a massive change, arriving quickly and in force, and its implications will continue to play out for decades. The cloud will not eliminate the need for smart IT professionals. Whatever else the cloud might turn out to be, it will not be a place where fools thrive, and smart professionals will be needed for the foreseeable future to help the enterprise make smart choices where IT is concerned.