New Business Models For Using Cloud Computing
Shaku Selvakumar 060001XT47 firstname.lastname@example.org | | Tags:  cloud websphere business agility ibm ibmimpact
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by Michael Holmes, Smart Work Marketing Program Director
I sat in on a great session by Michael Hugos (www.michaelhugos.com), CIO at large for the Center for Systems Innovation. Michael is really well spoken and has an uncanny ability to connect the dots between things happening in the business world. He had some genuinely provocative things to say about the job security of a lot of people in the audience… it wasn’t always a comfortable conversation. But that’s what makes for a thought provoking discussion and based on the volume of audience participation, he really struck a nerve on an emotional and personal level.
He started out making the analogy that it’s the lower top-speed, but better handling car that’s going to win the race on a windy, twisting road. The road is of course the ever-changing business climate. It’s not a new concept but to help support the kind of agility that is going to win the race, IT has to change just as easily. Michael talked a lot about the economics of IT supporting this kind of business agility. Too often, IT is a thankless position because when IT works, nobody notices and in the rare case when it fails, there’s hell to pay.
Michael made the classic argument heard for decades in intro level business school classes that companies succeed when they focus on their core value-added activities and turn non-core (but nonetheless essential) support activities over to others. From an IT perspective, this means turning over hardware and other IT infrastructure, software platforms, and increasingly even software itself to third party service providers. Economically this lets businesses turn fixed costs into variable costs so that no matter if they are growing or shrinking, their costs are in line with their business volumes. From an agility perspective, this helps the companies navigate the winding, twisting road of business more easily because tapping into pre-existing systems is as easy as flipping a switch. But where the conversation made the audience shift their weight uncomfortably in their seats was when Michael pointed out that most of the work that the done by people in the room fell into this non-core category. Not a good place to be for job security! The problem is, 70% of IT budgets are spent ‘just keeping the lights on’… leaving little room for innovation or focus on the business processes.
There is a huge portfolio of increasingly specialized applications available through the cloud to support the business. Michael gave the example of inventory management systems for small cookie shops… which is different for similar systems for small flower shops. The point is, it’s getting harder and harder for in-house IT shops to contribute real value to the business because more and more, the application already exists and doesn’t need to be created by in house staff… and nobody even notices the results of the 70% “lights on” budget spend.
So what’s an IT executive to do? Michael’s point is that greater dependence on 3rd party cloud-based IT service providers is inevitable. So we may as well be proactive about turning undifferentiating activities over. It’s going to be painful. But embracing this shift will allow in house IT departments to maintain control of the transition. “Do it to them before they do it to you”. In house IT shops need to focus on the things they can uniquely do to add value. This means managing (but not necessarily creating or owning) the portfolio of services that support the business. It means interconnecting with suppliers and customers for business and collaboration. This creates stronger relationships and stronger ecosystems. It means improving unique, core functions that produce customer value-add. It means working very closely with business users to come up with creative responses to unexpected situations.
It’s a brave new world and winners have always been the first to loosen their hold on the way they’ve worked in the past. Even when it means giving up something that has been the core of their job description in the past, creative destruction is the name of the game.
Want to learn more? Visit http://www.ibm.com/ibm/cloud/ and read our previous blog interview with Michael Hugos here http://bit.ly/9l02Y2
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