Adapting a large enterprise to exploit the new business opportunities presented by the On Demand Economy is no small feat. However, considerable resources now exist to explain and map how cloud computing can provide a platform for accelerating this capability.
Adopting cloud computing services can be a simple, tactical exercise to meet some immediate infrastructure needs, or it can be the catalyst to embracing an entirely new strategy for IT as a whole. This can drive an entire transformation of how the organisation works thanks to how it deploys technology.
The critical improvement is better ‘Business IT alignment’, meaning IT increasingly becomes a strategic asset for the organisation, rather than simply a back office commodity. The traditionally operational CIO can also evolve to become a ‘CDO’ – Chief Digital Officer, a board level executive reporting to the CEO and proactively defining how technology can play an integral part in strategic planning, not just operational fulfillment.
The strategy focused IT organisation
Robert Gold documents a repeatable maturity model for this in his article Enabling the Strategy-Focused IT Organisation1. This covers the issues that arise that cause business management to perceive IT to be overly expensive and failing to align these costs with benefit to their business units, and so instead this chart describes how to build the shift to a more business-centric alignment.
Fundamentally Gold defines a scale where at one end IT is perceived and managed as a cost and at the other end where it is integral to the strategy of the organization and treated as a high priority board level topic, with a maturity model to grow the IT organisation from one to the other.
Different practices, technologies and vendor products can be used as the building blocks for the individual elements of this framework, each directly linked to the capability improvements that Gold describes. So this maturity framework can drive a related procurement and adoption program, including quite specific expectations of different areas of investment.
For example in the Agility section Gold describes:
“Methods are applied to reduce development cycle time”.
This is the primary benefit of the new cloud-centric software development method known as ‘DevOps’. Through new software architectures like ‘microservices’, the use of PaaS (Platform as a Service) and best practices like Continuous Deployment, pioneers like Netflix have greatly reduced their time to market for new application features and enhancements. Thus they can be called upon to achieve this particular improvement step.
He also articulates the common sense need to ensure cost reductions and other value for money steps are taken.
“Technologies are used in innovative ways to reduce IT costs”.
This also corresponds with the advice of industry experts. For example the McKinsey article Find Your Digital Sweet Spot 2 describes how organisations should seek cost savings as well as front-facing customer improvements as part of their digital strategies.
IT value transformation – breaking innovation gridlock
Achieving a more strategic organisation requires that the most fundamental challenge of enterprise IT is addressed. Innovation Gridlock research from HP describes “a situation where the IT organisation is blocked from driving new business innovation because the majority of funding is consumed in operating the current environment.”
With so much of their focus and resources consumed in simply maintaining the existing legacy estate then little is left over to deploy new innovation-enabling technologies, and so this gridlock is a constraint that needs addressed.
A headline resource from VMware to explain this in more detail is this study commissioned from the IT Process Institute, their white paper: ‘IT Value Transformation Roadmap‘ 3 (24 page PDF).
Specifically the paper makes the point that this evolution results in the CIO being recognized for delivering strategic IT value:
“What is strategic IT value? Strategic IT value is demonstrated when IT plays a key role in a company’s achievement of overall business strategy. In other words, when IT is keenly focused on business outcomes and plays a significant role in optimizing and improving core value-chain processes. Or, when the IT organization drives innovation that enables new technology-enabled product and service revenue streams. When IT is effective, results can be measured by improved customer satisfaction and market share gains.”
In contrast many CIOs can find themselves boxed into somewhat of an operational corner – Responsible for keeping the lights on but perceived as poor value-for-money and as a result unable to attract new funding to modernize the deadweight legacy systems, a paradox and trap.
The IT Process Institute describe how CIOs can break this constraint cycle and shift from a cost focus to delivering strategic value for the business, through this three-step progression, and by doing so, breaking the Innovation Gridlock.
In this document they offer a blueprint for a Cloud Maturity Model, a ladder of maturing capability that you can compare your organization to, and use as a framework to plan your own business transformations, where:
“This cloud computing strategy brief presents a virtualization- and private-cloud-centric model for IT value transformation. It combines key findings from several primary research studies into a three-stage transformation road map.”
In short this is an ideal strategy blueprint for any existing VMware customers – It proposes a 3-Step maturity model that begins with virtualization and grows into full utilization of Cloud computing across three stages of:
- IT Production – Focus on delivering the basics and proving value for money.
- Business Production – Utilize technology to better optimize business processes.
- ITaaS – Fully embrace utility IT as a Service, and leverage technology for enabling new service innovation.
This corresponds with an increasing maturity in the use of virtualization, SaaS and other Cloud architecture principles and external services, that begins with where many customers are now, mostly half way through phase one, completing their adoption of internal virtualization.
Technology is embedded in the firms value proposition
The same improvement steps are repeated in the IT Strategy Alignment work also from the IT Process Institute, where they build on previous research from McKinsey that describes three main ‘IT archetypes’, three distinct stages of assessing IT organization maturity:
- Utility Provider – The IT organizations is predominately operational, only responsible for running the common IT infrastructure, such as email or servers for the accounting software, but playing no role in defining how they are strategically employed. Typically they report to the CFO as a cost centre.
- Process Optimizer – Increasingly the IT team starts to engage more proactively with the business, at the individual department level helping them better optimize their business processes.
- Revenue Enabler – Technology becomes a core component of strategic planning, directly enabling product innovation and competitive advantage, reporting to the CEO.
This corresponds with the same end goal of Robert Golds matrix, where the pinnacle of achievement is that “technology is embedded in the firms value proposition”.
It is eloquently described by the world’s most regarded management guru Michael Porter, who recently described that we are entering a third era of how IT can be applied to achieve competitive advantage, the era of the Internet of Things.
Previously technology wasn’t an integral part of products, it was used only to automate their surrounding operations like sales and distribution.
Now, through embedded sensors, processors, software and connectivity, technology is becoming part of products directly, and from this new opportunities for competitive advantage emerge. Businesses that integrate technology directly into their products, like ‘Wearables’, are achieving this ultimate position of technology maturity, embedding it into their firms value proposition.
Investing in dloud computing will build a platform for the IT organization to progress through these maturity scales, first enabling greater process optimisation and then ultimately becoming a strategic asset that underpins new growth for the organisation.