Cloud Computing and the Promise of On-Demand Business Innovation

Peter Fingar

We are witnessing a seismic shift in information technology, the kind that comes around every decade or so, and it will have a huge impact on business -- especially in today's economy.

First things first: What the hell is Cloud Computing? Definitions and opinions of cloud computing abound. At one point Larry Ellison, CEO of Oracle, declared it to be "complete gibberish" and "insane."

Reasons the enterprise shouldn't adopt cloud computing abound: security, privacy, lack of cost savings, data governance, migration issues, and legal and regulatory issues. Pick your favorite.

Sure, consumer-level cloud computing is cool, but why should the enterprise be interested in this "insane" stuff, as Ellison called it? Whatever the definition or concern, cloud computing, still in its infancy, is game changing. Remember how the retail book industry was slow to grasp the "non-secure, unreliable, poorly-governed" Internet? Then along came Amazon. Expect the same phenomenon with cloud computing.

This article, which is adapted from the new book Dot Cloud: The 21st Century Business Platform, (Meghan-Kiffer Press , 2009), explains that the story of cloud computing isn't about technology; it's about enabling businesses to do things never before practical that will drive the enterprise to embrace cloud computing. The current economic crisis will accelerate the adoption as companies cope with unexpected change, do more with less and adapt their business models to the current realities. Supply-side opportunities for cost savings made possible by cloud computing receive the majority of attention and focus. One reason for the cost focus is that expensive company data centers are often idle more than 90 percent of the time due to over provisioning to handle peaks. Private clouds can change all that, enabling companies to gain economies of scale while consolidating their data centers through virtualization.

But the implications of cloud computing go far, far beyond cost savings. As we will explore, business architecture is the central issue of enterprise cloud computing. No, there won't be a "big switch" where companies dump their data centers on a given Friday and move to data-center boarding houses (public clouds) in the sky the following Monday. The PC didn't eliminate the mainframe; the Internet didn't eliminate the PC. In fact, most large companies still maintain their back-office systems of record on mainframe computers behind the firewall; always have and probably always will. But it's those outward-facing front-office business activities that live on the Internet that must be woven into an overall business architecture. In short, Enterprise IT must extend out to Consumer IT, otherwise those companies simply won't be able to compete. As we'll explore, Web 2.0 has changed the landscape with social networks, and companies can ill afford to ignore the shift.

The Real Deal on Cloud Computing

In technological terms, the Cloud represents the knee in an exponential growth curve (see chart below) and the beginning of the "real" Internet. It's what the Internet was really meant to be in the first place -- an endless computer made up of networks of networks of computers. Notions of time-sharing, computer utilities and "the network is the computer" (as Sun's John Gage declared in 1984) have been around for quite some time. But early visions were constrained by a lack of network bandwidth. But now that the overabundance of dark fiber laid down during the dot-com boom is being lit up, perhaps it's time for a "computer utility redux" in the form of cloud computing.

But there is much more to cloud computing than high-bandwidth access to unlimited computing resources. That more is what you do with those resources. Since the beginning, the level of abstraction for commanding computers (programming) has experienced many step changes: from machine-oriented assembly languages, to COBOL, to object-oriented programming, to distributed objects, and now on to service oriented architectures (SOA). The higher the level of abstraction, the greater the simplicity of use, and the more people can participate in creating and consuming technology and information resources. Cloud computing is the next step in the evolution of the Internet as a source of "services." It's those services that users are interested in, not the underlying technologies. Just consider that Web 2.0 thing. As it turns out, Web 2.0 is a key driver for the production and consumption of services. Think about Web 2.0 as the consumerization of IT.

No, Web 2.0 is not new Internet technology, as Tim Berners-Lee, inventor of the World Wide Web, would tell you. On the other hand, Tim O'Reilly, publisher and coiner of the term Web 2.0, would counter with, "Web 2.0 is the network as platform, spanning all connected devices; Web 2.0 applications are those that make the most of the intrinsic advantages of that platform: delivering software as a continually updated service that gets better the more people use it, consuming and remixing data from multiple sources, including individual users, while providing their own data and services in a form that allows remixing by others, creating network effects through an "architecture of participation," and going beyond the page metaphor of Web 1.0 to deliver rich user experiences. "In this ecosystem, each individual in the organization becomes an active agent in building solutions for their own every day challenges," writes Jonathan Sapir in his book The Power in the Cloud. "Because they are closest to the problem or opportunity, they are better able to respond quickly and effectively."

Without drawing this discussion out further, physical dots (computers and networks) and mental dots (data, software and rich user services) are being connected in the Cloud to create a universal information and computational resource more powerful and easier to use by greater numbers of people than ever before. The question is, what does cloud computing portend for business? To really understand what cloud computing means for the enterprise, think architecture, where virtualized, standardized infrastructure and software services components can be bundled, unbundled and rebundled to create new and innovative business platforms capable of operating at a massive Web scale. I call the next big step in the evolution of enterprise architecture Cloud-Oriented Business Architecture (COBA).

So, what's new with cloud computing? "First is the ability to use components from different cloud resources and mix and match the solutions you're seeking," explains veteran enterprise architect David Linthicum. "Most firms won't just migrate enterprise applications to the Cloud, but instead leverage cloud infrastructure components as a jumping off point. You're able to use storage-as-a-service from one provider, database-as-a-service from another, and even a complete application development-and-deployment platform from a third."

This ability to use just the resources you need is a clear value of cloud computing, Linthicum argues. It's another "tool in the shed that has the potential to make your enterprise architecture more cost effective and efficient." Cloud Oriented Business Architecture

In the way that three-tier client/server and n-tier distributed computing architectures changed the world of IT by providing standard components, COBA opens new possibilities for organizations to do the same at a business rather than the IT level. COBA represents the fusion of SOA and business process management Process Oriented Architecture (POA), set in the context of cloud computing infrastructures. When I speak of SOA, I don't just mean Web services; I mean all the architectural "…ilities" that go with it to provide reliability, scalability, portability, security, etc. (To learn more about POA, refer to Martyn Ould's book, Business Process Management, A Rigorous Approach.

In short, COBA = (SOA + POA) x Cloud Infrastructures

COBA, centered on what I call "Situational Business Processes (SBPs)," will open new frontiers in how enterprises redesign their value chains to deliver their goods and services.

How so?

Let's consider how Harvard's Michael Porter changed management thinking with his value chain analysis (see diagram below). The value chains Porter described were monolithic, contained inside a vertically integrated company, with primary and secondary activities yielding margins based on the value added (Buy -- Add Value -- Sell).

The business processes that were once tightly confined within a single, vertically integrated company are blown to bits by the Internet and now stretch across multiple companies. These days, the typical value chain comprises more than 20 companies. Reassembling the business process bits from multiple companies into a coherent infrastructure is the centerpiece of 21st century business architecture, as depicted in the "End-to-End Situational Business Processes" pictured below. Think value Webs, not value chains. The result is a Web of any-to-any connections that can drive supply chains, demand chains and even the business processes that represent the core competencies of an enterprise.

Today, companies must manage multiple, individual value chains. Thus the business processes that drive each value chain must be lightweight and have the right level of granularity. That's where SOA comes in. With an SOA foundation, business process components can be bundled, unbundled and rebundled as end-to-end Situational Business Processes (SBPs) in response to new threats or opportunities. SPBs enable companies to participate in multiple marketplaces or reach out directly to individual customers. In the era of mass customization and personalization, a unique value chain may be needed for just a single customer and a single transaction (let's say VC-1 in the figure). Others may serve multiple customers over long periods of time (let's say VC-2). Companies will need to manage both kinds of value chains and their underlying end-to-end processes for each situation (hence SBPs). Variations in sourcing, customer service support, products, and market channels will be unique to each value chain.

Just consider UPS, the world-class parcel delivery service. When the company got into the computer repair business, delivery was only a small part of the new value chain UPS would have to support. When a Toshiba laptop breaks down due to a hardware failure, it's shipped to a UPS-run facility in Kentucky where certified technicians do the repairs, requiring a whole new set of value chain resources and activities to be managed.

Sound complicated? Business is complicated, and it's now completely driven by customers who expect what they want, when and where they want it. Call it mass customization. Call it the new reality of 21st century business.

As companies adopt SOA to provide standardized services, IT's contribution to the business grows exponentially. In the world of SOA, services are business process fragments that can be reused in many contexts and settings. Those reusable process fragments can be tapped as companies design end-to-end SBPs to support multiple value chains. That is, SBPs can be adapted to new projects, new initiatives, new campaigns and new lines of business. The key to making this possible is to free scarce IT staff from having to translate process designs into software code. With modern BPM tools, processes become first-class citizens and are placed center stage in the world of developing new information systems. Using business process modeling tools, services can be incorporated into process models that can be deployed without typical program coding.

No matter how long- or short-lived SBPs may be, their design, implementation and improvement must be given the same level of care and attention given to all enterprise business processes. This is where business process management and process oriented architecture come in.

So the key point is that software flexibility and reuse enable business process flexibility and reuse. That's the stuff of Cloud Oriented Business Architecture in the hyper-competitive markets of the 21st century. Just as SOAs have given IT great flexibility, COBA gives businesses the flexibility they need to form new bonds with customers and suppliers in real-time. Cloud computing isn't just about on-demand IT; it's about on-demand business innovation. COBA in Action

Hypothetical, mashed up, end-to-end, intercloud, situational business processes used to launch a killer new product is depicted below. It's a hybrid Cloud mashup that's ready for a consumer swarm driven by Facebook and other social networks. Thought the iPhone was hot? Well, welcome to the (fictitious) SG Phone, a complete 4G video phone built into sun glasses that will obsolete all others. The heads-up display, ear pods and eye-wink cursor control, backed by voice commands, does it all. Conceived and patented by a scientist gone mad, Warren Buffet's Berkshire Hathaway immediately invested $2 billion on the condition that the product be brought to market in an instant.

How'd you like to be the CIO that could make such Innovation possible? Now imagine that a (fictitious) wiz named Claude Skydancer has a plan. On the design and production side, he would plug in the original design manufacturer Flextronics in Singapore, which, in turn, would tap its suppliers using Avaro's Supplier Information Management as a Service (the same company GE uses) to source and manage any number of Tier-n component suppliers. Flextronics and its suppliers would also tap the GxS Rosettanet PIPaaS business process utility for B2B interactions, as well as Workday's human capital management (HCM) service for its 200,000 employees scattered over 30 countries.

On the customer-facing side of the endeavor, Salesforce.com was tapped for sales force automation, and Cordys' The Process Factory served as the grand orchestrator, providing situational process mashups. Google maps were mashed up to bring retailer locations into the picture. Finally, touching the swarm that would emerge at Facebook, Broadvision's E-MU merchandising system for mass customization was deployed. To get ready for the storm, Amazon's EC2 elastic compute cloud was put on standby for when the product launch became overwhelmed by Facebook and other social computing media.

The Takeaway

Cloud computing isn't just for small- and medium-sized companies and garage startups. Cloud computing makes it possible to create new business platforms that will allow companies to change their business models and collaborate in powerful new ways that weren't practical before. What's important for companies to consider is that cloud computing isn't about technology, it's about technology-enabled business models. In the current economic climate, it just could be time to heed the words of Ian Clarke, creator of the Freenet, "If your business model is selling water in the desert and it starts to rain, you'd better find a different business model." Whether it's selling water or selling financial services, your business models no doubt need a refresh.

In the past, IT was about productivity; now it's about collaboration, a shared information base and collective intelligence: the wisdom of crowds, social networking and cloudsourcing. Companies must now learn how to survive and thrive in a world transformed by social technologies that are outside any one company's firewall. Cloud computing will take globalization to a whole new level. As Cisco's John Chambers put it, "Our world's ability to collaborate will determine the future of companies and countries." And, as GE's Gregory Simpson noted, "The Cloud is simply the platform upon which to build better businesses."

Better businesses are just what the current economic crisis cries out for. In his just-released book, Beyond the Crisis: The Future of Capitalism, renowned Dutch futurologist, Adjiedj Bakas, wrote, "The Chinese phrase for crisis consists of two words danger and opportunity. The current economic crisis marks the end of an era, and the start of a new one. It is the fifth major crisis in 200 years. All of them occurred at the transition from one era to the next. During the current crisis we finally say goodbye to the 20th century and, out of the ashes, transit into a new era with new economic pillars and digital collaboration powered by cloud computing. This transition period offers tremendous opportunities."

Where else but in the Cloud will those opportunities be realized? So, lead, follow, or get out of the way. Yesterday the Internet, today the Intercloud. Welcome to 21st century business. Welcome to the Cloud economy.

Peter Fingar is an expert on business process management and business strategy. He is a former CIO and practitioner with more than thirty years of hands-on experience at the intersection of business and technology. He is the author of nine books, including his latest work, Dot Cloud: The 21st Century Business Platform, (Meghan-Kiffer Press , 2009). For more information, visit Peterfingar.com.