Re-thinking: Cloud and Enterprise Computing

Core and Context

The bulk of the economic value of organizations is processed through business and consumer supply chains of products and services across manufacturing and services industries. No matter whether it is retail, healthcare, banking, real estate, manufacturing, insurance, communications or others, there are significant gaps in the point-to-point business processes across business operations resulting from underlying Infostructure complexity.

This is precisely where the SuperCIO role becomes critical. A conventional CIO may optimize internal systems and reduce infrastructure cost. A SuperCIO asks a deeper question: which parts of the enterprise technology estate are merely context, and which information flows, interactions, and decision loops are truly core to competitive advantage? The SuperCIO’s job is to redirect technology leadership from internal IT efficiency toward external business leverage across customers, suppliers, partners, and markets. For many companies this has resulted in loss of profitability and in some cases the elimination of products and services all together.

Professor Hau Lee, well known expert in Supply Chain Management said,

Companies are great not because they were focused on cost or flexibility or speed but because they have the ability to manage transitions - changing market conditions, evolving technology, different requirements as a product moves through its life cycle. Companies also need to be able to handle one more transition: Crisis Management. Successful companies have been able to grab market share out of crises, which often requires them to work effectively across functional boundaries.

As the recessionary economic and business climate becomes more challenging for organizations, there are many competing priorities and fewer resources to maintain and manage existing operations. Still, with a once in a generation slowdown, it is also an opportune time to re-evaluate where automation and collaboration of these processes can make significant improvement now and in the upturn. It will not be sufficient to just be internally focused on your segment of the supply chain.

Services in Cloud: Architectural Transformation

Cloud computing is a new deployment and operational model for making IT management simpler and more responsive to the needs of the dynamic business. Cloud architecture decouples the IT infrastructure from the business services. But decoupling infrastructure from business services is not only a technical architecture decision. It is a leadership decision. The SuperCIO must understand cloud not as a destination, but as an architectural strategy: separating what the enterprise owns from what it consumes, what it standardizes from what it differentiates, and what must remain under direct control from what can be delivered through external platforms and ecosystems.

Cloud computing not only enables rapid innovation, flexibility, and support of core business functions but also enables design, development and delivery of new applications by highly efficient virtualized compute resources that can be rapidly scaled up and down in a flexible yet secure way to deliver a high quality of service.

In the pre-information era, suppliers and manufacturers have market power because they have information about a product or a service that the customer does not and can not have. But, now customer has all the information. Whoever has the information has the power. Power is now shifting to the customer. This means that the supplier, manufacturer will soon cease to be a seller and instead become a buyer for a customer. This is already happening.

Peter Drucker put it succinctly in his article, HBR Sep–Oct 1997, Looking Ahead: Implications of the Present:

Increasingly, a winning strategy will require information about events and conditions outside the institution: non-customers, technologies other than those currently used by the company and its present competitors, markets not currently served, and so on. Only with this information can a business decide how to allocate its knowledge resources in order to produce the highest yield. Only with such information can a business also prepare for new changes and challenges arising from sudden shifts in the world economy and in the nature and content of knowledge itself. The development of rigorous methods for gathering and analyzing outside information will increasingly become a major challenge for businesses and for information experts.

This is also why the SuperCIO cannot be limited to internal IT operations. The SuperCIO must help the enterprise sense beyond its boundaries across markets, customers, non-customers, suppliers, technologies, and emerging risks. In that sense, the CIO becomes not only the steward of systems, but the steward of enterprise intelligence.

Technology is a critical part of supply chain management because companies need to bring together disparate strands of information to be able to understand and assess situations. They also must have analytical services to be able to quickly and consistently decide on the best course of action.

A large number of the larger vendors offer some or all of the pieces needed to support more effective supply chain execution: supply chain management and ERP software for collecting data, data warehouses for staging data, and business intelligence software for creating and managing the reporting, scorecard, and dashboard elements. However, they may not be bringing all of the data together in a way that makes it useful, timely, and actionable. To do so, significant integration and customization are needed, which is very time consuming as well as expensive undertaking. Justifying the long development cycles and huge R&D budgets makes these projects not attractive to the business leaders.

Paul Saffo summarized the state of machines, complexity of tools, and exploding information in his HBR article, Are You Machine Wise? (HBR, 1997):

As our tools become ever more complex and interconnected and more central to the conduct of business, their benefits also become harder to recognize. Furthermore, executives need to know and understand the logic of the work done by machines—and, above all else, the limits beyond which those tools cannot be pushed. Meanwhile, the volume of information continues to expand exponentially, generated by machines conversing with other machines on our behalf. Every business activity leaves behind a wake of information, from data spinning off production-line process controllers to transaction records generated over retail-credit-card networks. And the growing centrality of the Internet for business purposes will only add to the flood.

Cloudability of ERP/SCM Services

It has taken good 10 years for companies to embrace enterprise resource planning and supply chain management. This is primarily due to high implementation and licensing costs of the software. In my view, the adoption of cloud computing services in a supply chain and enterprise resource planning many be faster than the former uptake patterns of on-premise enterprise resource planning software.

More and more companies are already collaborating with their suppliers, vendors, and partners using the Internet or VANs. It doesn’t make any economic sense to own and operate their own internal data centers to run these applications.

In the same way that ERP/SCM applications have not been employed to automate 100% of enterprises business processes, organizations are likely to use a hybrid approach, public and private cloud services where appropriate. Initially, lower-level cloud-based services such as accessing compute power or storage capacity over the internet (infrastructure as a service) and exploiting platform as a service for use in tactical and emerging applications. Software as a service models will be embraced for standardized application areas such as finance, payroll, logistics, human resources (context) that do not provide organizations with competitive advantage.

These companies may also pursue the concept of private cloud computing to create their own private cloud datacenters. Individual business units (or partners) then pay the IT department for using industrialized or standardized services in line with agreed charge-back mechanisms. This approach is less threatening than a wholesale move to the public cloud, but should make it easier to plan the gradual migration to cloud services.

Joe Wienman enumerated number of use cases for enterprise adoption of Cloud Computing. Joe Wienman wrote,

“Cloud services are definitely of use for extranet communities…we are seeing it in a variety of areas in AT&T’s businesses. For example, AT&T’s Sterling Commerce unit is a ‘cloud provider’ for supply chain visibility and optimization, and our AT&T Telepresence Solution provides benefits through extranet connectivity, where there is a network effect. And, with networking costs and transaction costs coming down, and enabling technologies such as RFID, sensor networks, electronic product codes, etc., supply chains will continue to benefit from neutral and authoritative cloud services, e.g., chain of custody for tagged pharmaceuticals. And, when two giants are part of the supply chain, e.g., a large retailer and a large consumer packaged goods manufacturer, where should the data reside? If it’s at the retailer, then the manufacturer can access it, but needs to build separate interfaces for other retailers, etc., so the order(n) vs. order(n squared) economics come into play, driving functionality into the cloud.”

Cloud and Business Implications

Cloud and Business Consequences

Conclusion

The economic downturn and globalization is changing the way enterprises operate. Changes are becoming increasingly more radical. Enterprises are being broken down into components and reassembled along different lines. The feeling of uncertainty has never been great as it is now.

Cloud computing going to play a critical role in simplifying the operations of Supply Chain networks and communities by taking advantage of cost structures and cloudonomics offered by the Cloud. Cloud makes new business solutions possible. This might means new or improved products and services, additional sales channels, more optimal means of procurement, new ways of customer, supplier collaboration, more effective management, and new information services.

Realizing this future will require more than cloud adoption. It will require a new CIO archetype: the SuperCIO. This leader helps the enterprise move from infrastructure ownership to service composition, from internal optimization to ecosystem collaboration, from static reporting to real-time intelligence, and from technology management to business architecture. In this sense, the SuperCIO is not merely responsible for IT, but for turning cloud into an enterprise architecture for adaptability, intelligence, resilience, and measurable business value.

Acknowledgements

I had the good fortune to be in a good place at the right time and to learn from others who willingly shared their experiences. I am most grateful to the many people who have offered me a helping hand, encouragement, and inspiration along the way.

I would also like to acknowledge the years of wisdom many of you has shared with me on cloud computing, issues, benefits, and challenges. My sincere appreciation goes to Joe Weinman for his helpful insight and perspectives on Cloudonomics and Supply Chain. He has generously allowed me to use his ideas and spared his valuable time to review this post and provided me his valuable feedback. I have incorporated number of his Cloudonomics laws and some of our email conversations into this article.