Despite investing significant effort, enterprises are struggling to understand and meaningfully evaluate cloud contracts, due to vast variations in contract details across service providers
- For service providers, possessing in-house IP and platforms creates differentiation in the cloud services market
- Service providers with an in-house “cloud-like” applications portfolio have a first-mover advantage in the cloud services market
Continental Europe led cloud services adoption in 2014 as enterprises sought to drive business agility and cost effectiveness within their services portfolios
Three years ago global services industry was abuzz that the world would be set on fire by cloud computing. Today, although CIOs and senior executives, accept the cloud model and are looking to implement it, they are increasingly excited about infrastructure and the digitization of business. The digital revolution is shading out cloud, capturing the imagination and mindshare of the C-suite.
Cloud is certainly important, but its impact is just starting to take traction and already the C-suite is moving on to a new horizon. My, how short our attention spans are.
Although digital can incorporate aspects of cloud computing, its impact compared to cloud is enormous in proportion and potential.
I wonder what will be next in line to capture our imaginations and how quickly that will come to gain prominence.
The cloud experiment is over and the debate in enterprises about its benefits and risks is settled. We know it works, it’s more flexible and cheaper, and it makes it easier for IT to align with business needs. So should buyers put their applications into a cloud environment?
My advice: Don’t rearchitect your legacy applications that were designed and implemented in a legacy environment and port them over to the cloud. Organization of all sizes have been waiting for providers’ porting solutions. Unfortunately, that’s sort of like the Samuel Beckett tragicomedy play, “Waiting for Godot,” in which two characters wait days for Godot even though they don’t know where or when he might arrive. Buyers wait, thinking cloud porting solutions will arrive in the market, but it just doesn’t happen. That’s because porting is really expensive and really risky.
I’ve blogged in the past about CSS Corp Cloud Services and Redwood Software platforms for easily migrating legacy apps to the cloud. But as we get further into the cloud story, it looks like replatforming offerings will be far rarer than we anticipated. I’m not saying they won’t exist; I’m just saying they won’t be the dominant model.
As the smoke clears from cloud experimenting and pilots, the best-practice dominant model for moving into the cloud is shaping up as follows:
- Look for opportunities to make incremental improvements to your legacy environment. Rework legacy by increasing the level of virtualization and automation in your data center.
- When you develop new applications, architect them for the cloud environment.
This strategy of adding virtualization and automation may get your legacy environment into a private cloud, but it doesn’t get you into the agile low-cost public cloud environment. However, it allows you to improve the efficiency and resiliency of the existing legacy environment without the huge cost and risk of rearchitecting.
The strategy also helps CIO organizations regain some of the influence and credibility they’ve lost with business units as they’ve addressed new functionalities enabling where the business is moving. It enables the organization to be more agile, better aligned and do so with lower cost, which significantly relieves the tension of having to get a huge amount of funding for a set of high-risk legacy projects.
The fact is for many legacy applications the best you can do is make incremental progress. You can move them out of dedicated hardware into virtualized hardware. And other than some potential cost savings, there is little to no business benefit from taking on the risk of reengineering them for a public infrastructure or shared environment.
We saw this same best-practice model happen with distributed computing; new applications went into distributed computing and eventually we reached a tipping point where we needed to move legacy apps. I anticipate the new functionalities, new work will similarly drive the shift from legacy to cloud.
Going forward until the tipping point occurs, put all your efforts into standing up your organization’s new environment to take full advantage of the business alignment, flexibility and cost that the cloud family offers and just make incremental changes to your legacy environment. If you wait for a huge re-platforming surge of cloud porting solutions, I believe you’ll be waiting for Godot.
In October 2013, Philips started to transform its IT infrastructure to a truly consumption-based model on the cloud. Alan Nance has been leading this activity in strong collaboration with Philips Procurement. Per the model, service providers charge no start-up or termination fees, and Philips pays only for what it uses. These terms are set out in a charter which all of Philips’ major IT infrastructure providers have signed up to.
One year on, I caught up with Alan to learn more about the transformation and progress to date. The full text of the interview has been published in a new Everest Group report called “Practitioner Perspectives.” In this blog I share some highlights from the interview and look at some of the key drivers for change at Philips.
These drivers include financial synchronicity, elimination of IT infrastructure Capex and speed to market.
Financial synchronicity is needed to bring IT costs in line with corporate revenue. The ultimate aim is to eliminate fixed IT costs altogether. Philips is on the way to achieving this goal. Although the transformation to consumption-based computing is still in its early days, Philips has already cut €30m of fixed costs – they have another €380m to go.
Synchronicity also applies to product development and speed to market – IT working in step with product requirements and with no Capex. One example is taking Philips’ Smart Air Purifier to China in three months. Philips’ speed to market ambitions in this case were achieved by working with Alibaba, which supports the air purifier’s mobile app on its cloud infrastructure. The app allows users to remotely monitor and manage air quality in their homes in real-time. By using Alibaba’s cloud, Philips took the product to a major new market without the need to set up new facilities such as a datacenter, in China. It tapped into Alibaba’s local presence and capabilities.
Philips’ infrastructure transformation has not been without challenges. Examples include:
- Ensuring that service providers’ offerings meet regulatory compliance requirements in different countries
- Developing a capability to monitor, assess and act on the impact of external changes on live services and operations
- Evaluating products and services for inclusion in Philips’ cloud catalog – this has been more manual and time consuming than Alan expected
Then there is the need to re-skill staff. Some of the people who are good at design, build, run, and operate need to apply their skills in different ways, such as, in the service design discussion with the business and selecting the right components from Philips’ catalog. Some people have been able to make that transition, and some have not.
Despite the challenges, Philips is boldly going where few companies have gone before – a truly consumption-based computing model that is pushing the boundaries of services contracts and outsourcing. As to why Philips is opting to pursue this model, the answer is provided to us by its business model. Firstly, Philips is creating more and more products that have interactive components with some form of data sharing between central systems and apps on smart handheld devices and mobile phones. Examples, as well as the smart air purifier and its mobile app, include tools for sharing medical information between doctors and patients, and Cloud TV which streams TV channels over the Internet to Philips smart TVs. This comes with an app that lets Dropbox users view their photos, videos, and music stored online. Cloud and consumption computing are ideal for supporting this business.
The need for agility is underlined in other aspects of the business; Philips is separating its lighting business from its health technology business. The consumption-based computing model is going to make it easier to separate the two companies as resources get divided between the two new entities with little infrastructure Capex impact on Philips. There are also acquisitions, the most recent being that of Volcano Corp., the US medical imaging company that Philips is acquiring for $1.2bn. An agile infrastructure would allow it to incorporate new acquisitions into its main business quickly.
Philips has recognized the role of infrastructure in business agility and is acting upon it. There are very few other companies that cannot benefit from Philips’ model. More and more products and services are being complemented with social and digital interaction channels and mergers, acquisitions and divestments are a business reality. The questions is why are not more companies following in Philips’ footsteps?
A conversation with Alan Nance, Vice President Technology Transformation at Royal Philips – the first of a new Practitioner Perspectives Series can be accessed by Everest Group registered users here: https://research.everestgrp.com/Product/EGR-2014-4-O-1350/Practitioner-Perspectives-Alan-Nance-Interview.
According to results from our annual Everest Group – Cloud Connect Enterprise Cloud Adoption survey, enterprises are most likely to migrate application development/test environment to the cloud and least likely to migrate ERP
According to results from our annual Everest Group – Cloud Connect Enterprise Cloud Adoption survey, enterprises now view the cloud as a consumption model and are losing interest in debating the deployment model
Cloud-based services are distinctly different from traditional outsourcing not only because of the obvious cost and agility benefits but also because they fuel the need for a different kind of management of the services. From a management perspective the governance is transformational because it allows the governance team to change their focus on how they manage the services.
The distinction between managing cloud-based services and traditional outsourced services is critical to the outcomes and value achieved from the service.
In traditional outsourcing, the customer has a lot of say, particularly up front, in terms of designing the solution. The solution often starts with taking over what the customer currently has and then moves into a transformation journey. The customer is responsible for defining how the service components fit together and also is responsible for managing the use of those components.
But this tends to lead customers to overbuy. For example, in infrastructure the customer tends to buy more service space and more storage than is needed at any particular point in time just to ensure coverage for peak usage times and volume growth. Because it is cumbersome to contractually change the volumes, the customer ends up buying usage in step changes with the net result of overbuying.
But the real issue is how much time and effort it takes to manage this traditional kind of service. The governing cost in time and effort can overshadow the benefits of the service.
In contrast, the fundamentals of cloud-based or next-generation services are usage-based pricing combined with bundling. The customer buys bundled services rather than discrete components, and this impacts service management. For example, in traditional outsourced services, the customer manages how much capacity is needed for storage, how many licenses to purchase, etc. In the newer service models, the customer manages a few metrics around usage rather than managing the components that allow utilizing the service. The newer models enable customers to avoid the trap of overbuying.
But more importantly, cloud-based and next-gen service models profoundly change the governance aspect in the following ways:
- Governance is much simpler and communication with the vendor or service provider is much simpler.
- Governance efforts focus on how the organization consumes the services and on spending time helping the business units to better use the service for more value outcomes instead of managing the vendor or provider.
- Governing demand management is much easier and reduces the complexities of billing and invoicing to keep track of usage.
The real issue of simplicity in governing cloud-based and next-gen services carries both good and bad news. The good news is that the simplification of management tasks means the customer will need a smaller management team. The bad news: The team will need a different set of skills. Instead of skills in managing vendors, purchasing, and invoice tracking, the governance team needs skills in change management, project management and business transformation.