Does the Cloud lead to homogenised enterprises?

Just a quick follow on from my last post about cloud computing/service delivery platforms/platform as a service/saas platforms etc etc as. I was intrigued by a Joe McKendrick post on the merits of the model.  Joe’s analysis was pretty balanced as usual but one of his disadvantages caught my eye as I disagreed with it strongly.  Essentially Joe suggests that there is a perception that “Enterprises leveraging Cloud computing may become homogenized — and lose the competitive advantage that may come from custom-built systems”.  As I’ve previously discussed the concept of cloud computing drives people to finally decide what business they are in; if they work in an end user organisation then they need to recognise that and start treating IT like a utility rather than a differentiator.  In this context, however, I would argue that rather than homogenising the enterprise it will have the opposite effect - if we get rid of our IT platform to the cloud (who cares if it is homogenised - it’s just a technology platform), consume our 80% of non-differentiating business capabilities as SaaS or BPU services from the cloud (who cares if these are homogenised - they don’t differentiate us) and then focus all of our attention on realising the remaining 20% of differentiating capabilities - as custom built systems - more rapidly and cheaply on our chosen cloud computing platform(s) then we will be maximising our advantage whilst losing none of the benefits.  It’s important to realise that just because we don’t own and operate the physical technology it doesn’t mean that we can’t own the services that run on it  - we can still develop our custom-built systems to realise our differentiating capabilities.  And given that this is the only bit of the whole value chain that’s actually important for us to customise I would argue that we are - in reality - less likely to end up homogenised since we are more focused on where our value really lies and therefore more able to maximise our differentiation from our competitors. 

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Service Delivery Platforms peek from behind the Cloud

Quick note having just read Dion Hincliffe’s article on Google App Engine and Amazon Web Services (their respective cloud computing infrastructures).  These platforms are early and very basic instances of the ’service delivery platforms’ I’ve talked about for the past few years (for an example see a presentation I gave at the MS SOA & BPM conference last year).  As I discussed during this talk, I use the term ’service delivery platform’ in place of ‘platform as a service’ or ‘cloud computing’ since in order to really support viable and fully rounded service delivery you need to provide far more than a ‘platform’ or ‘infrastructure’ - a topic I’m going to return to now that this area has been popularised by Google and I won’t seem like (such) a lunatic, lol.  More broadly, however, I’ve discussed a number of times why I feel that economics and technology commoditisation will drive people down this route eventually and I’m really excited now to see a number of competitors emerging in this space (with Amazon, Google and Salesforce now competing with a number of smaller startups (with more to follow)).  I know I’ve said this before but people are really going to have to start deciding what business they are in - if you work in an end user organisation then you need to recognise that and start treating IT like a utility rather than a differentiator; if you’re an IT service company, however, you’d better work out whether you want to be focused on relationship brokering and consulting, utility computing platform provision or  SaaS/BPU service offers, since the economics of each are very different (you may in fact want to play in all three but if so you’d best disaggregate your company and run them autonomously under your umbrella brand - or you’ll make a complete hash of them all).

One of the interesting things for me is whether a middle-ground model will emerge that enables enterprises to take advantage of the industrialisation and economies of scale available to service delivery platform vendors whilst also enabling the deployment of ‘edge’ infrastructures to customer specific environments.  In this context we may see locally deployed ‘chunks’ of the central service created for those organisations that are large enough or who have specific privacy or trust issues (still coordinated with and managed from the centre, however).  Whether such a model has a long term future is an interesting (but as yet undecided) question to my mind but in the short to medium term those SDP vendors who were able to deliver such a transitional solution would provide a compelling migration path to enterprises who are nervous about the implications of a wholesale shift to the cloud.

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SOA vs Efficient & Agile vs Differentiation

One of my friends recently sent me an article from CIO connect that stated “IT Agility Trumps IT Efficiency”.  Essentially the drift of the argument was that agility was becoming a much greater driver than efficiency, citing a survey in which executives placed IT agility at the top of their wishlist.  Taking this point a little further the article suggested that many people now saw SOA as the best route to achieving greater IT agility and that this was now becoming the main motivator for adoption.

I obviously found this interesting but unsurprising - I’ve always believed that SOA was the quickest route to increasing agility and would only extend this to cover the use of service-orientation to organise the business around the delivery of services and not just the IT.

More broadly, however, I had some comments in relation to sources of sustainable differentiation and where it comes from; in this context I had some specific comments around efficiency and agility - the two options from the article. 

Now the big problem with efficiency is that it often becomes an end in itself.  Anything you can make more efficient is codifiable - whether through the use of SOA or not - and therefore can be copied by others.  Therefore efficiency is unlikely to be a long term differentiator.  Worse than that people who spend all of their time trying to be efficient gradually turn inwards and lose sight of why they were doing things in the first place (i.e. to give their customers what they want at best value). 

Interestingly, using SOA to realise greater agility is also not really a long term differentiator since having access to technology that allows you to change your codified processes more rapidly is fine but such technology is available to everyone and therefore agility as an end in itself ceases to be a reliable source of differentiation.  Whilst not moving to service-oriented business models in order to become adaptable will undoubtably be bad for your business, it cannot be considered a sustainable source of differentiation given that the option is there for everyone.  In this context it is more important to identify those services within your business that capture differentiating IP or talent and which would benefit from agility to keep you ahead of your competitors. 

In both of these instances the real advantage comes from recognising those services within the organisation that are key assets - and leveraging them mercilessly - whilst also identifying those things that are non-differentiating - and getting rid of them.  There is no point trying to invest in the efficiency or adaptability of non-core services since in that context you are just competing with other people in areas that provide no long term differentiation.

The only real and true differentiation is increasingly going to be in the 20% of services that encapsulate IP or amplify talent – true agility will therefore require us to codify non-differentiating capabilities and – where possible – get rid of them to specialised providers whilst maximising the leverage of the tacit knowledge we have in the form of our most talented people or the IP that they generate.  Ironically a search for control and efficiency in the new connected world will often disenfranchise the very people that we should give the greatest freedom to, stifling their judgement, talent and ability to create valuable relationships and in the process destroying a potent source of competitive advantage.

So is a search for efficiency and agility necessary?  The answer of course is yes but they are now just the way we win the right to stay in the game and not a source of competitive advantage by themselves.  A search for efficiency is often best realised through the leverage of partner services in place of endless tinkering with non-differentiating services of our own, whilst agility comes far more from our ability to leverage a web of partners who really care about service than from our own mediocre and uncaring supporting functions.  At the end of the day it’s how we deliver our service that matters and for this you need your best people in the front lines supported by technology that enables them to amplify their talent or maximise the leverage of IP but not driven by technology through highly restrictive processes in the pursuit of efficiency or wasting their valuable attention implementing and supporting agility in the wrong places.

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