Heeding the “Cloud Warning”

I read an interesting post yesterday by Andrew McAfee, a principal research scientist at the Center for Digital Business in the MIT Sloan School of Management. In his article, “The Cloud Warning” http://bit.ly/s9PFbc, McAfee contemplates cloud computing’s potential to contribute to large competitive shifts not only among IT vendors, but also among consumers of technology. He draws an analogy between the “incumbent firms” holding back and being very cautious about the Cloud and the incumbent companies who held back on converting from steam to electricity a hundred years ago.

McAfee recalls the long, slow, uneven process of converting American factories from steam to electric power and notes how the transformation to electricity was led by startup companies and new buildings. The failure to transform was devastating to the incumbent manufacturing base. By 1935, over 40% of the big industrial trusts formed by 1905 had failed. Of the incumbents that survived, most became much smaller, with market shares declining by a third.

McAfee wonders if cloud computing will be similarly important. His gut tells him that the Cloud will be a big enough deal to contribute to competitive shifts and turbulence even in mainline, old-economy industries. He predicts intelligent adopters will be able to change, respond, and scale up more quickly than rivals relying on on-premise computing. He also foresees Cloud adopters will also generally be more efficient, more analytical, and better able to capture and share what they know. McAfee believes these advantages will be telling in the intensely competitive business environment of tomorrow (and today).

Companies with legacy IT and the large existing base of on-premise computing will indeed find it difficult to transform to cloud computing. Migrating existing business processes involves countless decisions in regard to the numerous people, practices, and philosophies that go along with large and entrenched IT constructs. And I have found very few enterprises with the sound IT governance required to make those decisions.

Enterprises with good IT Governance (or more appropriately, Business Governance of IT) have the constructs and processes in place to address any new trend in enterprise information technology. These constructs and processes provide the decision-making machine to determine if and when an enterprise should “move to the Cloud.” If the answer is yes, IT governance is then used to see the transformation to its completion.

Consider the following list of IT Governance processes with notations showing the cursory contribution each makes to cloud computing-related decisions:

• Integrated Business & IT Planning – Needed to determine Cloud strategic fit
• Architecture Management – Needed to determine Cloud architectural fit
• IT Investment Assessment, Prioritization, Funding & Benefits Realization Accountability (PPM) – Needed to ensure Cloud Computing investment decisions are reasoned, rational and deliver appropriate value
• IT Financial & Resource Allocation – Needed to address and manage the myriad of Cloud-related financial and resource ramifications
• Project Execution & Decision-making (PMOs/PM) – Needed to manage Cloud-related projects
• Emerging Technology Evaluation & Adoption – Determines which Cloud service and deployment models to adopt and when to adopt them
• Client Relationship Management – Liaison between the Cloud User and Cloud Provider
• Building & Maintaining Applications & Infrastructure – Key in determining when to develop/deploy on premise vs. defer to the Cloud
• Provisioning of IT Services – Needed to facilitate and manage service provisioning in the Cloud
• Outsourcing Services – Needed to manage Cloud contracts and manage far more critical SLAs
• Audit & Risk Management – Needed to address and ensure security and compliance

Organizations adept at these processes know each is essential to making the decisions required to ensure:

• Information technology is aligned to the business
• Information technology investments deliver appropriate value to the business
• Information technology risks are appropriately managed
• Information technology resources are appropriately managed
• Information technology performance is appropriately managed

Of all the IT Governance processes I list above, Project and Portfolio Management (PPM) is the process I believe most contributes to meeting the above principles of IT Governance. PPM ensures all investments are identified, prioritized, authorized, managed, and controlled to achieve specific strategic business objectives. This includes investments in cloud computing.

The bad news is that I have found most organizations lack adequate PPM capabilities. Technology investment decisions are frequently undisciplined, mismanaged, and too often wrong (50% of the time according to almost every IT Project success rate study over the past 20 years).  Ineffective IT governance and inadequate PPM will greatly hamper “incumbent firms with legacy IT” from moving to the Cloud – but there is another possible scenario that bodes even worse for “incumbent IT organizations.”

Poor IT governance and ineffective PPM contributes to the huge chasm between the business and IT and many enterprises will view cloud computing as a panacea to this debilitating quandary. Business units will now be able to go directly to Cloud providers to make investment s in technology. This is a twist on McAfee’s fear that incumbent firms will be left behind by new companies starting-up in the Cloud. Instead, these companies might simply leave their incumbent IT organizations behind by unilaterally making cloud computing decisions.

But will those cloud computing investments be aligned with the business? Will they deliver appropriate value? Will they be too risky? Will they make the best use of resources? Will they perform as desired? Will those cloud computing investments be the right decisions?

Enterprises with sound IT Governance and PPM will simply continue to ask and answer each of those critical questions because they have institutionalized processes such as PPM and they have fostered and enabled reasoned and rational decision-making. Cloud Computing becomes just another business technology investment option for the folks who are assigned technology investment decision rights and accountability.

McAfee’s article does a great job of forewarning “incumbent” firms about the perils of “gradually falling behind their Cloud-enabled rivals over time until they no longer matter.” This forewarning won’t necessarily forearm enterprises, unless those organizations have sound IT governance and effective PPM. If they do, they’ll be armed to the teeth and more than ready take on the challenge of cloud computing transformation.

 ~ Steve ~