Why Cloud spells C.o.m.p.e.t.i.t.i.o.n. for the average IT department

This blog was originally posted at ITSMportal by columnist Gregor Petri on April 19th, 2010

Competition seems to be a controversial topic for many in IT. We rather see ourselves as service providers, but typically as the only – or at least the preferred – service provider. The reason to start this new column series on ‘The impact of cloud computing on IT service management’ with this controversial topic is that there seem to be two independent train of thoughts around cloud computing. On the one hand cloud computing is seen as a way to make traditional IT more efficient, on the other it is seen as a way for users to source IT solutions directly. The first group talks about Infrastructure as a Service and private clouds, while the second talks less but rapidly implements Software as a Service solutions, often bypassing the IT department in the process. Both groups are implementing cloud computing, but from very different starting points. Somehow they need to start talking again; otherwise we either get ‘strangers passing in the night’ or ‘a train wreck waiting to happen’.

For the first time in its history IT is facing outside competition. Sure, outsourcing was no picnic, but outsourcing was more like subcontracting to a ‘friendly’ supplier than real competition. With cloud computing users can simply go outside to procure the services they need. I am currently watching an interesting example close by. While the internal IT department is scrambling to offer an in-house social media type collaboration environment, one user department already went outside. To protect the innocent we won’t mention whether this was a production, sales, marketing, R&D or other department, but you get the idea. Starting in Australia, furthest away from corporate headquarters – both in distance and time-zones – they set up a collaboration environment with an outside cloud provider. In just a few weeks every member of this global department started sharing their activities, thoughts, projects and enjoying the typical communication that people enjoy on social networks.

As this cloud service is low cost (even starting with free), easy to use and it offers anywhere, anytime access also from non HQ supported devices such as iPhones and home PCs, the chances of IT winning this department back for their corporate service are dim at best. One good soul tried to help IT by requesting a similar online watering hole from corporate IT. As instructed he filled out a service request form at the central service desk , but to date he is still awaiting the first response from IT (a first response likely to be questions about priorities, about what executive will sign this off and what cost center it needs to be charged to). Now this may not be a mission critical enterprise system, but similarly we see user departments contracting directly with system integrators to build new enterprise solutions on a PaaS platform. My point is that many IT departments still seem to be in denial on the realities of this new competitive world called cloud. Time for a wake-up call.

Now IT is not the first department in corporate history to face some serious competition. Here is a wake-up analogy from the consumer electronics industry (if you’re not big on analogies, just substitute ‘application’ for ‘TV and ‘IT’ for ‘factory’ and ‘cloud’ for Japan). About two decades ago a company from my country was global market leader in color TVs. Back then the average life cycle of a TV, before a new model would arrive, was 3.5 years. The average price was fairly stable at around 800 Euro’s and basically all components were custom designed and produced in house. Becoming the head of a TV factory was the ultimate career dream for many in my home town. Just a few years later, after Japan and Korea entered the global market, prices had dropped by 40% (and continued halving every two years), new models replaced old ones every 6 months and innovations such as remote controls, stereo, PiP and c-text determined market leadership. Our local multinational nearly did not make it through this transition. To cope they introduced ‘just in time”, ‘total quality’ and started ‘design for manufacturing’, heavily utilizing standard off the shelf components to accommodate the much shorter life cycles. And to top things off they stopped producing the main component (CRT’s) in house, instead they created a production joint venture (a.k.a. a ‘cloud’) with their biggest competitor.

Overnight the head of manufacturing had to change from being ‘the king of low cost production’ to ‘the fastest orchestrator of the supply chain’. Agility became the word. But agility did not replace the need for low cost, high quality or advanced innovation. It was about delivering all of those at the same time and at neck break speed. Some industries decided this was just too hard and stopped in-house manufacturing all together, others saw it as an opportunity for differentiation. In my view the above analogy graphically illustrates the roller coaster ride IT is about to get on.

Many of the needed skills and tools, such as smarter sourcing, resource pooling, and service oriented architectures; we have already been trialing in the past few years. Under the banner of agile development we even have had a first go at coping with rapid change, despite the overwhelming complexity of enterprise IT. In addition there are many manufacturing best practices, Lean being the obvious one, that IT can benefit from (see also ‘How lean is your cloud’).

The question in my view is: is IT ready and willing to give up their manufacturing role (provider of services) and transition into an orchestration/supply chain role. Essentially engaging in both mentioned conversations: making enterprise IT more efficient, while at the same time enabling the enterprise to leverage readymade market/cloud services. Interested in your thoughts and comments.