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The Business Value of Cloud Computing

Ultimately, the value of cloud is far greater than a tactical focus on technology and operating costs

Cloud computing is the hottest topic in IT. Gartner ranks cloud in the #1 spot of its list of top 10 strategic technology topics. It is the overriding theme at most industry conferences this year. Projections of cloud revenue growth rates in the high double digits further underscore the relevance of the topic.

Yet today’s discussions of cloud computing only hint at its full potential. Like the early days of e-business and the introduction of SOA, cloud is in its infancy, with its promise still to be fully realized. Advocates of cloud are limiting their focus to tactical cost benefits and efficiency gains on the IT infrastructure side, but the real benefit of cloud computing will be realized within the context of future developments that will shape the course of IT. When combined with these developments, cloud computing will become part of an innovation that changes everyday life.

A Platform for Collaboration
Cloud computing will become the foundation for new forms of collaboration and cooperation within a company that break down barriers that separate individual departments, isolate specialist areas and IT organizations, and divide companies from customers and business partners. By breaking down these barriers, more people, more expertise and more business information will be brought together to create more dynamic and effective organizations.

The dynamic expansion of cooperation and collaboration, supported by the concept of cloud computing, will be driven by business needs and by changes within business organizations. This pattern of expansion has been true for every transformative IT development in recent history.

For instance, the replacement of the mainframe by the client/server model as the dominant computer architecture in the 1980s can be traced back to management's desire to establish a divisional or department-oriented organizational structure. The success of the internet/web as a communication infrastructure for businesses was directly related to the division of work in a globalized economy. By contrast, the relatively slower adoption of SOA in the years immediately after its introduction demonstrates that even excellent technical ideas fail to achieve a (rapid) breakthrough if the corresponding business driver is missing.

Consumer-Driven Cloud
Cloud computing offers that business driver by advancing the goals of cooperation and collaboration within a cost-effective and easily scalable model. Within businesses worldwide, the expansion of forms of cooperation and collaboration is already taking place. Gartner calls this phenomenon and its further evolution “extreme collaboration.”

In turn, this expansion has been triggered by changes taking the consumer segment by storm. The expansion of cloud computing to power collaboration in the consumer market is closely linked with names like Facebook, Twitter, Wikipedia, Google, Apple and Amazon. With names synonymous with technological progress and innovation, these companies are successfully demonstrating what cloud computing can do—even if they rarely use the term “cloud” themselves.

These companies are proving every day—in an extremely difficult and demanding consumer market environment—that the use of IT does not have to be subject to any location or time constraints. All that is needed to access an impressive array of services and communication applications are web capability and internet access. Nearly endless IT resources in the provider's data center are ready to switch on and off automatically as needed. Highly efficient virtualization concepts for separating technical levels and workload processes, combined with a modular, expandable data center design that is based on standardized system blocks, establish the necessary conditions to deliver communication and collaboration capabilities to users across the globe.

These businesses and smaller service platforms such as Foursquare, emphasize the benefits of active user participation in various ways. They bring like-minded people together (social networking through Facebook), support working together (social collaboration through wikis and blogs), guarantee standardized access to information (social publishing with Flickr, YouTube and slideshare.com) and generate feedback (social feedback with Amazon). All the examples mentioned above have two things in common. First, they focus on users and their needs and are streamlined for communication and collaboration. Second, they establish a comfortable user environment with the cloud computing operational model. Where and how the infrastructure to support this model exists, let alone IT infrastructure scalability issues, are not a concern for customers.

Cloud Use in Business: Tactics and Beyond
Cloud services increasingly are being offered for companies at different levels—from server and storage, to applications such as e-mail or office programs, even to specialized applications. Instead of operating their own data centers, businesses can consume and pay for services as needed. Growth rates in the high double digits document the interest in this option. Cloud revenues in the enterprise sector are expected to quadruple to about $11.4 billion by 2015.

The consumption of cloud services promises greater flexibility in the face of changing needs compared to investing a company's own resources in planning, implementing and operating technology themselves. Anyone who has seen the reaction of a CIO when told that more than 200 additional users need to access an application or server will understand the more tactical business drivers for cloud. Although cloud services provide an easy and cost-effective way to scale quickly and gain additional resources, CIOs are significantly missing out on the true potential of cloud computing if they limit their perspective to this use. Separating access to IT resources from their physical location enables companies to finally cash in on the promise to focus on and involve the user by supporting new and innovative forms of collaboration.

Apple established a cloud-based ecosystem around its iPhone business. The company itself provides an excellent end-user device and an appealing marketing and payment platform through which the consumer can access applications for the iPhone. Apple then allows application developers to share in the success without having to deal with the nuisance of running an online shop organizing payment transactions. Apple supports these activities through its online App Store and iTunes platforms—and makes money in the process.

Sometimes a company's own customers encourage it to open up to “crowdsourcing,” a term coined by Jeff Howe about five years ago and seen in the case of Lego, the world’s fourth- largest toy manufacturer. The Danish company approaches its customers openly through its “Mindstorms” project, where every interested Lego fan has access to a variety of design tools, message boards and other features to create their own models, publish model designs in the Lego community and develop them further as a group. Awards are given to the best domestic, exotic, most creative, and most interactive toys.

The Mindstorms project is considered a blueprint for successful customer participation. Throughout the business world, numerous open-source projects are also proof that groups can organize their work on products online, independent of location and time. In its simplest form, a growing number of companies are inviting their customers to "friend" them—to use popular social networking jargon—to share their ideas, opinions and wishes.

Strategy and Opportunity
Economists like to place the concept of social computing and crowdsourcing in the context of theories presented by British economist and Nobel Prize winner Ronald Harry Coase in "The Nature of a Firm." In the end, business decisions revolve around the following question: Under which conditions should a company invest its own effort or outsource it to a third party? The internet has significantly reduced the cost of collaboration, and the cost of coordination and communication. The operational model of cloud computing further reduces this initial hurdle because of the easy and flexible way companies can access IT services independent of location or time.

In principle, bringing together the cloud and crowd opens up excellent opportunities to more effectively divide up complex tasks and projects into smaller segments, work on them independently, and then merge them back together again. According to the Gartner list mentioned above, social communication and collaboration—along with cloud computing and mobile applications/media tablets —round out the three most important strategic technologies to watch in 2011. Gartner predicts that the majority of enterprise applications will have integrated social computing technologies by 2016. At a conference on developments in enterprise customer relationship management, Gartner analyst Adam Sarner even put forward the theory that these activities are taking the internet back to its original idea of user collaboration and participation.

But opportunities exist in more than just improved business results, as some theorists have proposed. They can also be found in the area of intra-organizational information and communication processes. Potential areas of application for new types of cooperation can be quickly identified in every layer and operational level of a business.

For instance, in a manufacturing firm, sharing among product and process experts, department heads, customers and partners in the planning process establishes an excellent basis for addressing customer needs with product improvements. It also accelerates product development and delivery. Equipping staff with mobile end devices guarantees that coordination and decision-making happen in real time. This real-time management enables smooth transitions by allowing anyone to enter or quit the interaction at any time. A variety of internal and external participants work together, without organizational or geographic barriers, to introduce operational improvements and process optimizations to the service portfolio. Instead of having to spend precious time requesting information from individual departments within a company or compiling results, they are simply "there."

The result: The company saves time and money, delivers better products and ultimately strengthens its competitive power. For this reason, it is in a CIO’s best interests to adapt social computing technologies and extreme collaboration applications to IT-supported processes.

Cloud Cautions: the Crippling Effect of "Standard"
The goal of gaining greater agility and flexibility in IT is not fundamentally new, and helping companies achieve that goal has been the promise of many technology developments preceding cloud. Companies should apply the lessons learned from prior technology initiatives in their exploration of cloud computing.

In the past, many technically-motivated IT concepts have failed to reach their full potential on the application side (supply chain management, customer relationship management, and lean production) or on the program level (SOA) when faced with the reality of a traditional application approach. One reason for this failure is that when searching for the most comprehensive support for business processes, the majority of companies decided establish a long-term partnership with a provider of enterprise resource planning systems, such as SAP or Oracle. Because of the process support they provide along every service and value chain, standard systems promise maximum efficiency when compared with a combination of specialized solutions from different providers. Application function and process management are firmly interwoven.

But companies pay for the advantage of a high level of integration with a loss of flexibility, which is a prerequisite for the dynamic agility expected in today's business world. Without flexibility, with every process change businesses are obligated to spend time and money on customization projects with IT specialists realigning segments of the standard software. The diversity and breadth of the standard software market in all its various categories are ultimately expressions of the inherent contradiction between standard and flexibility.

Today, the market clearly favors agility and speed over standard systems and integration. Businesses need an open platform to counter the crippling effects of rigid application systems once and for all, and to lay the groundwork for agile forms of working and the organization of processes. The starting points for such a platform are, first, a consistent separation of process design and management from the content of standard business software. Second, this platform must include the concepts of social media/crowd computing for designing and managing company processes.

Cloud Computing Complements Business Process Management
Cloud computing is also a natural complement to business process management (BPM). Collaboration is essential for the modern goals of BPM, which requires cooperation across the enterprise. To achieve this collaboration and cooperation, a process and integration platform is needed that follows the entire lifecycle—all the way from modeling a process to executing it within a software runtime—of a business process with a uniform architecture philosophy and a semantic metadata model. Only then can an organization bridge the existing gap of understanding between business and technical IT around BPM. With the collaborative approach of model-to-execute, business process models created by process designers can be transferred into executable services in the IT and application landscapes with a high degree of automation. Changes made by any stakeholder are immediately transparent at every work level. The integration of performance data from technical monitoring with key business process indicators creates the basis for collaborative dashboarding to enable ad hoc and joint decision-making when facing new market challenges or disruptions.

Along with a common understanding at the content level, having access without constraints to business processes and tool environments is beneficial for realistic collaboration scenarios. This is where the cloud computing model comes into play. Similar to social media platforms, users can invite each other to collaborate on BPM-related projects on short notice, regardless of their location. A web front end is all that is needed to share process knowledge and models, compare them and develop them further as a community.

Using cloud computing to simplify the collaboration between process stakeholders is a key success factor for improving flexibility and quickly adapting business processes to address constantly changing market conditions. A business process can be modeled, prototyped and tested quite easily in the cloud. Whether the services and applications are run in the cloud later or on a traditional in-house system is irrelevant. Without a doubt, businesses have greater access to specialized application services through the cloud computing model. Therefore, all data and services will need to be incorporated transparently in a complete process design from the operational side—independent of location and origin.

The combination of BPM, collaboration and cloud will inevitably lead to a radical change in how businesses deal with standard software—a change that is even anticipated to surpass the switch from mainframe/host-based solutions to the client/server model. Instead of a centralized purchase of complete solutions, the customization of process logic for businesses will be managed outside application functions.

Providers of standard software must attempt to loosen the deep integration of their software and offer more small-scale application content. Only then will application providers open up the full potential of cloud computing. Unfortunately, by dominating the current discussion with technical concerns, some software companies are successfully distracting from the actual requirements context. Transferring a traditional ERP model into a cloud deployment might help increase efficiency in that regard, but that doesn't resolve the fundamental contradiction between standard software and process flexibility – it just hides it behind a cloud.

Ultimately, the value of cloud is far greater than a tactical focus on technology and operating costs. When utilized to collaborate on process design and other essential business tasks, cloud computing will be a source that powers the transformation to becoming a fully digital enterprise.

More Stories By Wolfram Jost

Dr. Wolfram Jost is Chief Technology Officer for Software AG. He is responsible for Research & Development as well as Product Management and Product Marketing. Dr. Jost has written numerous articles for books and magazines and has co-authored more than 10 specialist books.

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christianverstraete 02/13/12 10:29:00 AM EST

Cloud has many aspects of which you addressed some. I like your approach to go beyond just the replacement of your datacenter as this is truly what I also advocate. I'm currently running a series on the business aspects of cloud here . There I also discuss how and where to take your applications as this is a question I often receive from customers.

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