IBM Global Business Services Cloud ComputingWhite PaperCloud computing in the consumerproducts industry
2 Cloud computing in the consumer products industry Executive Overview Cloud computing helps reduce costs — not simply contain Smart consumer products companies use the power of cloud them. This approach has already helped IBM consumer computing to respond more quickly, improve service delivery, products clients achieve breakthrough productivity gains reduce costs and drive business innovation. through virtualization, optimization, energy stewardship and flexible sourcing. With IT spending at a very small percentage As the consumer products industry faces unprecedented change of total revenue (most of which is spent on maintenance and to meet the needs of consumers, retailers, new markets and management of existing systems), and with billions of dollars challenges in commodity prices, two things will separate the lost annually to supply chain inefficiencies, consumer winners from the losers: speed and agility. Technology will products companies trust IBM cloud computing solutions have a key role to play in providing business leaders with the to help them become truly capable of glocalization and information and predictive capabilities to make decisions differentiation, to integrate information and foster innovation quickly. But with business still suspicious of the actual value and to demonstrate the consumer-centricity and corporate added by information technology and the ongoing pressure responsibility that keep their organization strong. on budgets, a new delivery model must be found that is fast, secure, cost effective and has the ability to bind business and This whitepaper gives an overview of cloud computing and IT. That model is cloud computing. illustrates how IT and business leaders at consumer products companies can use IBM cloud computing to: Consumer products companies are drawn to cloud computing for its ability to speed service delivery and increase service and • Develop solutions in a short time infrastructure availability while creating an elasticity that • Reduce IT labor cost by 50 percent in configuration, allows services to be expanded — or contracted — as demand operations, management and monitoring changes. Cloud computing gives you the ability to take action • Improve capital utilization by 75 percent, significantly with much greater speed and reduces IT labor costs by up to reducing license costs 50 percent in configuration, operations, management and • Reduce provisioning cycle times from weeks to minutes monitoring.1 • Improve quality, eliminating 30 percent of software defects • Reduce IT support costs by up to 40 percent Because companies can leverage economies of scale through a cloud environment, they can reap this higher ROI through greater staff efficiency and optimization of IT resources. Cloud computing supports efforts to establish and enhance information management and service management architecture. With all these benefits in place, cloud computing also help improve the perception of IT as being both flexible and responsive.
3 IBM Global Business ServicesThe consumer products industry: The consumer products industry is changing to meet the needsPlenty of IT challenges of the consumer and retail customer and their IT organizationsBusiness leaders at consumer products companies have been cannot stand still. IT groups at consumer products companiesdiligent about cost takeouts — and in support of this effort, must continue to control costs — yet they are also charged withIT departments have moved to a distributed computing creating business value. But where will they get the budget?environment. But despite much effort to streamline, the same According to a 2008 IBM study of CIOs, spending is very lowproblems persist. The consumer products industry continues and staying flat.to lose about US$40 billion (3.5 percent of sales)1 annually to supply chain inefficiencies and customer trade promotions The most recent figures from a study of 134 CIOs indicate still account for approximately 15-25 percent1 of revenue spend. that IT spending as a percentage of total revenue was 2.11Adding to these pressures for IT is the perception of business percent — and much of that spend is on maintenance andleaders that IT does not drive or deliver value. The business existing systems. Little money is allocated to growth and newside also perceives projects as taking too long to complete, areas of opportunity.and quality is not what it should be. Further supporting this view, the 2008 GMA IT Study reported that 2007 IT operating budgets as percentage of total revenues was 2.11 percent. See Figure 1. Despite the need to enhance these capabilities, IT spending remains flat and substantial change within IT is seen as needed As % of revenue, most IT budgets have Chief Information Officers and Chief remained flat over the last 5 years Executive Officers see need for change Amount of IT change required to respond to changes in the marketplace 3% 10% 4% 14% 2.24% 28% 2.12% 2.17% 2.03% 2.04% 1.97% 2.10% 2.09% 2.11% 82% 2% 1.71% 1.70% 1.59% 1.62% 1.56% 1.42% 1.38% 1.39% 62% 1.33% 1% 0.82% 0.44% 0.42% 0.41% 0.42% 0.42% 0.43% 0.39% 0.39% 0.33% 0.35% 0.35% 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 Chief Chief Total IT Budget Capital Budget Information Executive Operating Budget IT Depreciation Officers Officers and Amortization No/limited Change Moderate Change Substantial ChangeFigure 1: The average IT budget has remained flat as a percentage of revenues
4 Cloud computing in the consumer products industryIT executives can no longer allow the power of IT to lie Flat spending and the need for substantial change withindormant. The industry is undergoing the most dramatic IT results in meaningful gaps that need to be embarkedchange seen in years, with new availability of data driven by upon and beyond. New IT consumption and delivery modelsenterprise resource planning (ERP) implementations and new demand new strategies from IT if leaders are to position thesources of external data. Considering all this, a fresh approach enterprise for the speed and agility needed to fill these gaps.must be taken by IT organizations at consumer products (See Figure 2). In this document we will discuss how cloudcompanies if they are to work with business leaders to enable computing can help.transformation to succeed in a dramatically different future2. Despite the need to enhance these capabilities, IT spending remains flat and substantial change within IT is seen as needed Chief Information Officers and Chief Executive Officers see need for change Lowest importance/ 1 5 6 7 8 9 10 Highest importance/ poor performance good performance Increased internal efficiency/productivity 6.5 8.1 Increasing supply chain visibility for traceability 6.1 7.4 Gap Increasing efficiency of trading partner interactions 6.2 7.4 5.3 Importance Increasing understanding of consumers needs 6.5 6.4 Growing market share 5.3 Complying with customer requirements 8.6 7.6 Performance 7.5 Key: Supporting ongoing business operations 8.4 Importance 5.9 Performance Increasing sales to consumers 6.7 building consumer brands 6.2 5.3 Reducing procurement costs 6.1 7.0Figure 2. Flat spending, coupled with the need for substantial change within IT, results in meaningful gaps that mustbe addressed by consumer products companies in 2010 and beyond.
5 IBM Global Business ServicesCloud Computing can deliver Three different types of cloud computing implementationsCloud computing is a way to deliver IT services within the have been defined: A cloud within the enterprise, commonlyenterprise, over a network or over the Internet. Service called a private cloud, a service provider-owned cloud accessedconsumers are only aware of the service; they have no need over the Internet, commonly called a public cloud, and ato understand details of the underlying IT infrastructure, hybrid cloud, in which the IT services of the private cloudits technology or its implementation. The service provider is are supplemented by those of a public cloud. (See Figure 3).responsible for implementing the service and managing therequired infrastructure. Cloud computing is defined based on its characteristics of scalability, virtualized resources, rapid provisioning andThe best cloud computing solutions are those that provide standardized offerings as an emerging style of IT delivery.a safe and secure method by which to enable a business use Applications, data, and IT resources are rapidly provisionedcase. Security is an important consideration, because in and provided as standardized offerings to users over theconsumer products today, the organization acts only as network (Internet or Intranet) in a flexible usage model.a transport mechanism for the transactions; it is not theretailer, it is not the bank and it is not the carrier. Instead,the consumer products company acts as the broker to driveconsumers to retailers. Today there are three primary delivery models that companies are implementing for cloud Enterprise Traditional Public Cloud Enterprise Private Cloud IT Hybrid Cloud Private Cloud Hybrid Cloud Public Cloud IT activities/functions are provided Internal and external IT activities/functions are “as a service,” over an intranet, service delivery provided “as a service,” within the enterprise and behind methods are integrated, over an intranet, the firewall with activities/functions allocated to based on Key feature include: Key feature include: security requirements, - Scalability - Scalability critically, architecture - Automatic/rapid provisioning - Automatic/rapid provisioning and other established - Standard offerings - Chargeback ability policies - Consumption-based pricing - Widespread virtualization - Multi-tenancy Transform to a dynamic infrastructureFigure 3. There are three primary delivery models for companies to consider when implementing for cloud computing.
6 Cloud computing in the consumer products industryWhether deployed within the enterprise or by a service Cloud computing is a cost-effective way for your company toprovider, resources are pooled and virtualized so that they transform to a more dynamic, agile infrastructure — but beappear as a combined single resource which can be provisioned aware of the economics of the different approaches. Enterpriseto deliver services with elastic scaling. In addition to the clouds, for instance, deliver operational efficiencies that canprovisioning and virtualization of services, private cloud make a real difference for consumer products companiescomputing de-provisions these services as well, making because they make virtualization and image managementpossible the “freeing-up” of resources for other purposes. The possible. But cloud service providers with highly-standardizedconcept of re-purposing and reuse is a key tenet of the cloud. workloads can drive even higher levels of cost savings for mega-data centers. (See Figure 4.) Cloud Scale Economics Enterprise private clouds vs. cloud service providers Enterprise private clouds offer significant operational efficiencies through virtualization and image management Cloud service providers with highly standardized workloads can drive even further cost optimization for mega-data centers Unit Traditional cost SMB architecture Enterprise Cloud service Cloud service provider provider prices Enterprise private Cloud cloud costs Cloud service architecture provider costs 2000+ servers 10000+ servers Scale Transform to a dynamic infrastructureFigure 4. A comparison of enterprise private clouds vs. cloud service providers.
7 IBM Global Business ServicesCloud computing: Four service categories managing the underlying software and hardware. PaaS can alsoFor companies that seek to obtain value with cloud services, be referred to as “cloudware.” With PaaS, web services, web 2.0it is important to understand the different ways in which the capabilities and middleware can all be offered as a platform onvarious categories of services can be delivered. There are four top of which applications can be built, assembled and run.main categories of services provided by cloud computing. Infrastructure as a Service (IaaS)Business Process as a Service (BPaaS) IaaS provides hardware components such as servers, networkBPaaS makes it possible for companies to consume equipment, memory, CPUs and disk space. With IaaS,business outcomes by accessing business services using consumer products organizations can run their entireweb-centric interfaces on multi-tenant and shared operations without installing and maintaining in-house datainfrastructures — without the need to own or manage centers. Access to IaaS provides consumer products companiesthe underlying resources. BPaaS is an effective and efficient with a means to expand the reach of their existing internalway for consumer products companies to create value enterprise applications to user groups in new markets withoutquickly for processes such as trade promotions and Vendor the capital expense and time required to build out privateManaged Inventory services, and relieves your organization infrastructure. The approach to delivery of these servicesfrom the need to support multiple dedicated resources to varies from provider to provider and market to market. Thismanage back-office processing of financials, business service should be considered as consumer products companiestravel and property management transactions, procurement globalize their operations.and employee benefits management. The platform and infrastructure layers are optimized andSoftware as a Service (SaaS) streamlined in the way they function. For instance, whenSaaS is a software distribution model in which software is a cloud-enabled application is deployed, it may not havehosted by a provider in a central and remote location and traditional relational SQL access to data. This abstraction ismade available to consumers through the Internet or an what allows infrastructure providers to offer scale throughoutIntranet. SaaS is based on a pay-as-you-go pricing model. all three layers (software, platform and infrastructure).Consumer relationship management and procurement suppliermanagement are two areas that IBM has seen deployed on The business model for cloud infrastructure focusesthis service. This gives consumers of the service a way to squarely on efficient utilization of the base infrastructure.decrease or increase the number of software licenses based The economies of scale of cloud are driven by the degree ofon need without having to install or maintain software or virtualization of the physical infrastructure, including servers,hardware or incur ongoing maintenance costs. network and storage. The cloud platform manages the services running on the infrastructure. The services being providedPlatform as a Service (PaaS) by the cloud are what the ultimate consumers use.PaaS is a form of cloud computing in which the computingplatform (hardware and software) is delivered as a service,typically over the Internet. PaaS enables consumer productscompanies to create, test, deploy and host applications quicklywithout having to bear the cost and complexity of buying and
8 Cloud computing in the consumer products industry To succeed, consumer products companies must possess specific capabilities Gone are the days when consumers trusted a name brand; instead, they trust Internet chatter, community blogs and web reviews about products. Increasingly volatile commodity prices must be managed intelligently. Shifts in business models Consumer products companies must themselves must occur as the dynamics of the industry acquire specific capabilities change and the value chain becomes even more complex. There are plenty of channel challenges, too, as the retail In a world that is increasingly intelligent, instrumented industry continues to consolidate; for the first time, consumer and interconnected, IBM has identified six capabilities products companies find that retailers are both customers that consumer products companies must execute in and competitors. And all this is set against a backdrop of order to be successful. economic uncertainty and an ever-increasing growth in the importance, power and influence of developing economies. • Glocalization. Balance local with global systems and processes. To win in an industry that is becoming more competitive by • Differentiation. Pinpoint the processes, assets and the day, your organization must possess six capabilities — and resources that create value, and then improve them. technology will be at the core for delivering them. But business • Integrated information. Capture, integrate and leaders, due to past experiences with IT, are often apprehensive analyze data to better deploy business performance. about IT’s ability to deliver. Cloud computing can change the • Innovation. Create an open model that encompasses thinking of business leaders who distrust the ability of IT to differentiated and value-oriented offerings that deliver, and can provide IT with a delivery model with which exceed consumer expectations. to execute with speed and agility. Working in the cloud, IT • Consumer-centricity. Connect with consumers organizations can bring forth solutions that strengthen brand directly through popular channels and also through and consumer insights, that foster global collaboration and that retailers. are implemented very quickly. • Corporate responsibility. Conduct business responsibly, efficiently and effectively and consumers It is important to consider the workloads that apply to success- will react positively to your brand. fully achieving these six capabilities, since the kind of work that an organization must accomplish possesses inherent characteristics that make it run most efficiently on certain types of hardware and software. Some activities demand fast transactions, while others, like predictive analytics, require intense calculations.
9 IBM Global Business ServicesTo build cloud strategy, understandworkloadsSmart consumer products companies know that they mustdevelop the six capabilities mentioned above if they are tothrive — and they are aware that technology is at the core ofsuccess in all six areas. The most efficient and effective ITapproach will be one that is specifically suited to your organiza- Workload recommendationstion’s workloads — and one that makes the most of the standardsand processes. You should think in terms of workloads when IBM has identified workloads that will most likelybuilding your cloud strategy. offer highest potential return and pose the lowest risk for cloud projects.Since workloads vary according to platform requirements,complexity, business criticality and data sensitivity, some are Public cloud entry points: infrastructure workloadsideal for a public cloud, while others are more suitable for are most appropriatedeployment in a private cloud. For this reason, a workload-based approach to cloud computing is essential in determining • Audio/video/web conferencing which delivery model — public, private or hybrid — is best for • Infrastructure for training and demonstrationthat workload. It crucial to understand which workloads can • WAN capacityrealize the greatest benefits in a cloud service environment. • VoIP Infrastructure • DesktopIn addition, some workloads, due to their characteristics • Test environnent infrastructure(low risk and high potential for ROI) are better candidates • Storagefor a cloud pilot project. Business use cases are workload-based, • Data center network capacityso know how you will deliver your workload and business use • Servercases to understand not only which cloud strategy suits yourneed, but which service is best suited for delivery of those Private or hybrid cloud entry points: database andparticular use cases. application workloads are most appropriate • Data mining, text mining or other analytics • Security • Data warehouses or data marts • Business continuity and disaster recovery • Test environment infrastructure • Long-term data archiving/preservation • Transactional databases • Supply chain applications • Trade partner applications • ERP applications
10 Cloud computing in the consumer products industry Use case scenario: Business analytics in the cloud One of the world’s largest food companies has engaged IBM to develop a cloud-based platform to support analytics. A technology-enabled pilot is providing insight and decision making capabilities that link the company’s digital, consumer An expansive vision of the future: and supply chain initiatives into a single program. These linkages are fundamental to sophisticated forecasting and Strengthening customer loyalty deliver advanced brand performance monitoring and execution. Cloud computing can help consumer products companies expand their capability in new arenas Cloud computing has made it possible for this company to around the world, delivering the ability to support break free from an analytics environment that had impeded initiatives in markets where supporting infrastruc- swift execution. Because IBM has invested heavily for years to ture does not exist. help consumer products companies achieve business goals, the cloud solutions implemented encompassed three dimensions: Organizations find cloud solutions especially consumer, brand and channel. valuable for social analytics and collaborative new product innovation, since business leaders gain IBM cloud solutions brought these elements together to the ability to scale up quickly as they expand create a near real-time analytic and action environment to throughout their brand portfolio. enable more efficient and effective trade programs. Data from consumer, brand and channel sources is normalized using These companies see real value in an approach statistical analysis and presented in a dashboard framework. that enables permission-based marketing securely Managers get performance visibility against retail level data and easily. They enjoy better management of their and can take action while a promotion is underway. business reality—a pervasive digital environment in which marketing and new product innovation Demand signals are collected from heterogeneous sources never stops. (both internal and external) to increase visibility throughout the value chain. Forward viewing improves internal execution and drives actionable collaboration with business partners. The IBM integration suite helps the company load, cleanse and harmonize a vast amount of disparate data into a consistent information platform. IBM business intelligence and dashboard technology deliver trustworthy information to the right stakeholders. And longstanding relationships with leading industry partners made it possible for IBM to create solutions that specifically address the needs of retail store operations.
11 IBM Global Business Services Six Steps to Getting Started with Cloud Computing 1 2 3 IT Roadmap Architecture Workload Assessment 4 5 6 Enterprise & ROI Implementation Cloud Mix Transform to a dynamic infrastructureFigure 5. IBM offers six proven steps to help you get started with cloud computing.Getting started with cloud computing Change is possible. The tools exist today.IBM can help your company identify and prioritize your Discover the power of cloud computing. Investigate an cloud computing initiatives. With decades of industry approach that delivers the kind of rapid transformation youexperience and demonstrated success implementing cloud need to succeed in an environment that grows more vibrantsolutions, IBM can help your organization determine how and complex by the day. Create a truly dynamic infrastructureto examine workload and business use cases. that lets you use collaborative technologies to the fullest. Experience a world in which business goals and IT capabilitiesIBM offers a roadmap to help you understand not only which have fused. For consumer products companies, success residescloud strategy suits your need, but which service is best suited in the cloud.for delivery of specific business use cases. Look to IBM to helpyou assess and plan cloud adoption. Expect a “level of readiness” For more informationevaluation that gives you a clear idea of what to address first. To learn more about IBM cloud computing for consumer products companies, contact your local IBM representative or visit: ibm.com/solutions