BUILDING STEAM FROM A GRAIN OF SALT.

An Observation on the State of Cloud Computing in the New Millennium.

The first rule of any technology used in a business is that automation applied to any efficient operation will magnify the efficiency. The second is that automation applied to an inefficient operation will magnify the inefficiency.” – Bill Gates

Over the past five years, cloud services have moved from being perceived as a risky solution suited for non-critical services to prevalence in the vast majority of enterprises impacting the vast majority of business functions.
Cloud services have reliably addressed the false promises of inflated expectations, myopic forays into disjointed and non-critical solutions, the steady assault of misleading claims from legacy vendors cloudwashing legacy solutions, challenges from frivolous new entrants who trivialize the concept of cloud, and legitimate concerns about security, privacy, and sovereignty. For cloud services to become ubiquitous across enterprises and business functions in the face of these challenges is a testament to the steep change in utility costs that cloud delivers, the acceleration in innovation that cloud enables, and the potential for discontinuous business value that cloud makes possible.

This success has been accompanied by exponential increases in the criticality of business functions which leverage the cloud, the diversity of technology and service delivery models delivering cloud services, and the complexity of management and governance models for cloud services. As cloud services have matured beyond the confines of peripheral and experimental solutions into the core of the enterprise, these enterprises need to integrate cloud into transformation strategies, leverage cloud for enterprise-scale solutions, and manage cloud as a strategic imperative.
This new breed of enterprise cloud services is already the foundation of enterprise transformation. Whether it can be the catalyst for the next wave of technology-driven innovation depends on how enterprises shape the direction of transformation and harness the power of enterprise cloud.

THE NEW REALITIES OF CLOUD COMPUTING

Based on the experience of hundreds of major enterprises defining and executing enterprise cloud strategies, there are several new realities that all partners in the enterprise cloud ecosystems – clients, cloud platforms, integrators, service providers, consultants – need to recognize and address. The data presented below is taken from Avasant Research’s online survey of over 1,500 global technology executives from January to May 2018.

1. THE FUTURE IS NOW

Even at the height of the last of the luddites holding on to their legacy technology bastions, cloud adoption had already crossed 50 per cent as early as 2012. Since then, the conversation has shifted from “never cloud” to more subtle, or passive-aggressive, “not time yet.” Despite the oft-heard narrative that cloud adoption is always a moving target of two to five years away, over 90 per cent of North American enterprises are already leveraging some form or another of cloud services, with the penetration of cloud services expected to reach almost 100 per cent by 2020.
Cloud services have also matured to support complex and mission-critical functions, penetrating far beyond early-stage forays into non-critical and peripheral workloads. Of enterprises in 2017:

  • Over 80 per cent use cloud services for early-adoption functions such as workplace productivity, sales & marketing, customer management, portals, content management, and analytics & reporting.
  • Between 70 per cent and 80 per cent use cloud services for core back-office functions such as finance & accounting, human resources, and procurement.
  • Over 55 per cent have adopted cloud services even for mission-critical supply chain and R&D functions, with even the most intransigent services related to manufacturing have 45 per cent cloud adoption.

By 2020, cloud adoption for the early-adoption functions will range from 90 per cent to 97 per cent, and be in the 85 per cent range for core back office functions. Over 75 per cent of supply chain and R&D functions will leverage cloud services, and even manufacturing will see adoption levels close to two-thirds.

2. UNITY IN DIVERSITY

In addition to the broad adoption of enterprise cloud services, there is a proliferation of technology and service delivery models. Enterprise cloud is no longer a choice between virtualized cloudwashed solutions from legacy providers and one-size-fits-all hyperscale solutions, but present a wide range of viable choices for each business function:

  • Software as a Service, based on a combination of software solutions available on hyperscale solutions, on-demand solutions provided directly by software vendors, or on-demand services provided as integrated solutions by industry-specific specialized integrators.
  • Public infrastructure or Platform as a Service, based on hyperscale solutions providing platforms for enterprise applications in a multi-tenant model.
  • Private infrastructure or Platform as a Service, based on on-demand delivery models in a dedicated environment with hyperscale vendors, major integrators, or even in their own premises.

3. BEYOND FEAR, UNCERTAINTY AND DOUBT

As enterprise cloud services have become more prevalent, more embedded in core operations, and more diverse, the key challenges have shifted from the hygiene factors such as security, privacy, and sovereignty, to more complex needs related to service performance and end-to-end process orchestration.

Following an evolution not dissimilar to Maslow’s hierarchy of needs, the traditional existential challenges which lent themselves to unfounded hysteria based on fear, uncertainty and doubt (FUD) have largely been addressed, and have been replaced with new challenges which go to the heart of enterprise cloud services operating as a core part of enterprise business processes, with even newer challenges related to business value realization beginning to emerge as enterprises start measuring the business impact of cloud services.

Over the last five years, the key risks related to security, privacy, and data sovereignty have largely been addressed, as there is only a small minority of enterprise (10 per cent or less) that continue to see issues with these critical risks not being readily addressable in the market. The erstwhile #1 concern, market availability, has essentially become a non-issue as more enterprises believe there are readily-available solutions than perceive market availability as an issue.

The primary focus of enterprises has shifted to ensuring that enterprise cloud services can meet the needs of mission-critical operations, with issues such as functional fit, service availability, incident restoration, and monitoring & alerts being perceived as a key risk by between 80 per cent and 95 per cent of enterprises, and over 20 per cent continuing to see these risks as not readily addressable in the market. Disaster recovery, as part of broader resilience and continuity concerns, remains the most critical issue, with over 40 per cent of enterprises not seeing readily-available solutions in the market to address this risk. Together, these operational concerns represent the most important obstacles to enterprise cloud adoption.

As enterprises gain more experience in implementing and managing Enterprise Cloud solutions, issues that were previously ignored have started emerging as key considerations. Technology issues such as network architecture, data integration, and enterprise integration are being better understood, and are a key concern of 50 per cent of enterprises, with between 20 per cent and 25 per cent of enterprises failing to see readily-available solutions. The ability to ensure end-to-end performance management and accountability is the most significant of these concerns, with over 30 per cent of enterprise not seeing readily-available solutions. These technology and integration issues are rapidly becoming as important as the operational concerns, and require a concerted effort to address before they become the next generation of obstacles to the adoption of enterprise cloud.

As the first generation of enterprises are beginning to mature in their leveraging of enterprise cloud services, there is a growing concern related to business impacts which were taken for granted in the early days of cloud adoption. Perversely, as the previous risk issues are largely acknowledged as being addressed, enterprises are increasingly questioning the very premise of Enterprise Cloud as a driver of business value. Issues related to the realization of cost savings, the delivery of greater business agility and the ability to support greater innovation are still nascent, with less than 35 per cent of enterprises perceiving these as concerns.

These unseen issues are however early signs of concern, with 10 per cent of enterprises, (or one-third to 40 per cent of those perceiving concerns) not seeing readily-available solutions to these concerns. Proportionately, this gap is higher than that for the key operational concerns, and as the business value of enterprise cloud becomes more of a focus as cloud adoption matures, the gap will widen unless proactively addressed by enterprises.
As the focus of enterprise cloud discussions shifts from risk to integration to value creation, traditional approaches to technology and service management are going to become increasingly irrelevant.

DON’T MANAGE YESTERDAY’S SOLUTIONS TOMORROW

Enterprises have spent the greater part of three decades optimizing technology and service management disciplines around the concept of expensive, complex, disparate solutions that require significant operational oversight, significant time to change consumption patterns, and significant cost and effort to improve. Cloud services, by the nature of flexible on-demand consumption, are not suited to management and governance approaches based on pre-negotiated baselines or customized pricing for incremental consumption or considerations of fixed cost amortization. These services are most certainly not suited to monthly or quarterly reporting and analysis of consumption and performance, or extended planning processes related to new functionality or lifecycle management.
The value leakage related to unforeseen demand, poorly-managed provisioning, inefficient architecture, immature performance management, and inflexible integration and innovation management can more than double the cost of enterprise cloud services, undo even fundamental benefits related to lifecycle management and almost eliminate the significant cost advantage that well-architected and well-managed cloud services can offer. The data presented below is taken from Avasant Research’s online survey of over 1,500 global technology executives from January to May 2018.

  • Unanticipated Demand– Clients who are exploiting cloud services for enterprise workloads typically report a 30-40 per cent higher cost than budgeted, based on higher consumption. Forty per cent of this consumption is due to cloud adoption at a faster pace than anticipated. However, with cloud consumption scaling up on a daily, hourly, or even per-minute basis, and capacity decisions for legacy environments being made on a quarterly or annual basis (if at all), there are often no corresponding reductions in traditional workloads, leading to a higher cost with no offsets.
  • Unmanaged Demand – The larger issue is that close to 60 per cent of this higher cost is due to inefficient or unmanaged consumption of cloud resources, starting with simple issues such as provisioning the wrong commercial model for specific workload needs, to continuing utilization of cloud resources after the on-demand need has been fulfilled. Together, these factors reduce the on-demand nature of cloud consumption and create excess unused capacity that companies continue to pay for, not unlike traditional on-premises or outsourced data center delivery models.
  • Inefficient Architecture – The single biggest driver of inefficiency is application and integration architecture that is inefficient and leads to higher transaction volumes in and out of cloud environments. While in traditional delivery models, transaction inefficiency does not have a direct impact on costs given the high level of unused excess capacity, these superfluous transactions have a direct impact on cloud costs, as much as 40-50 per cent higher than what can be achieved with well-architected solutions.
  • Management Complexity – While hyperscale solutions offer a high degree of automation, monitoring and reporting of the native workloads, there is significant cost and effort involved in integrating and orchestrating these services with both applications hosted in an IaaS/PaaS model, and with other services outside the native cloud environment. The costs of instrumentation, monitoring, automation, integration, and reporting can erode any management and governance efficiencies compared to traditional on-premises or outsourced managed services.
  • Legacy Integration – Inability to restructure operations to support the much higher velocity of change in cloud environments, and the need to ensure these changes are coordinated with and integrated into other workloads, can effectively offset any benefits of lifecycle management that are possible from cloud services. Collectively, the need for increased integration effort, lifecycle management of non-cloud environments, and the management and governance of these efforts can cost as much as, if not more than, the lifecycle management efforts related to traditional environments.

NO MORE SQUANDERED VALUE

Despite the significant progress in cloud adoption, the ubiquity of Enterprise Cloud services, and clear understanding of the barriers to value creation, there remains one final barrier to transformation that has held business innovation back for over two decades and perpetuated legacy and obsolete technologies in enterprises.

The prohibitive cost of transforming obsolete, customized, and inflexible technologies, when combined with lack of capital in many industries, leads to over half of transformation initiatives never seeing the light of day, and over 95 per cent of technology spend continues to be sundered on the maintenance of increasingly obsolete solutions. Even when executed, traditional approaches to transformation are associated with an abysmal track record, with 65 per cent of initiatives failing to meet scope, cost, or time objectives, the average cost overrun being 50 per cent, and a mind-boggling 90 per cent of initiatives requiring immediate remediation due to obsolescence caused by long planning and execution cycles, typically three-four years from ideation to execution.

Progressive technology companies and leading enterprises are responding by disposing of the traditional portfolio management and capital budgeting approach to transformation, and instead adopt Zero Cost Transformation approaches based on:

  • Significantly reducing or eliminating capital investment required for innovation
  • Investment by strategic technology partners in the digital transformation program
  • Compensation for technology partners linked to tangible business value generated, measured, and reported 

In 2017, over 25 percent of all transformation initiatives are based on co-investment, and close to one-third of initiatives link some or all vendor compensation to tangible business value generation. This partnership is made possible by the significantly lower cost of readily available cloud-native solutions, the exponential impact on business efficiencies, increased flexibility to switch technologies and vendors based on open standards, and rapid maturation of the market for co-innovation partnerships. Most critically, by leveraging cloud-native solutions and embedding DevOps into transformation initiatives, enterprises can shrink initiative timelines from three to four years to three to six months; greatly accelerating innovation, reducing cost and time risks, and virtually eliminating the risk of technology obsolescence.