Clearing the fog from cloud computing

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  • 1. Clearing the Fog fromCloud ComputingAnalysts tout it, vendors promote it, the mediareport on it. But discussions about cloud computingare often obscured by IT jargon. Clarity reveals thecloud’s silver lining. Clearing the Fog from Cloud Computing 1
  • 2. There is no question that cloud computing has made a name for itself. Companies worldwideare turning to public and private clouds for their IT needs. In fact, 80 percent of Fortune 1000companies are expected to be using cloud-computing services as early as 2013, and 20 percentof them will do so without ever owning a single piece of hardware. By 2014, the value of publiccloud services is expected to grow to $55.5 billion from $16.5 billion in 2009. That’s an annualgrowth rate of 27 percent—about five times the growth rate of IT services.1 The same type oftechnology resides within most companies. Often called a private cloud, it too is growing fast,influenced by the growth of public clouds and the new capabilities cloud provides.What is cloud computing? The most often cited definition comes from the U.S. National Instituteof Standards and Technology: The cloud enables convenient, on-demand network access toa shared pool of computing resources—networks, servers, storage, applications, and services,among others.2 Several key features are crucial to the cloud offering and to today’s dynamicbusiness environment (see figure 1).Figure 1Cloud computing is defined by five features On-demand Establish, manage, and terminate services on your own, self-service without involving the service provider Broad network Use a standard Web browser to access the user interface, without any access unusual software add-ons or specific operating system requirements Resource Share resources and costs across a large pool of users, allowing pooling for centralization and increased peak load capacity Rapid Leverage capacity as needed, when needed, and give it back elasticity when it is no longer required Measured Consume resources as a service and pay only for resources used serviceSources: Forrester; A.T. Kearney analysisCloud computing represents a significant and needed step toward the “utility-ization” of ITservices across all layers of the architecture stack, meaning IT functions are becoming morestandardized and services-based. Just as no programmer would expect to develop code forwindowing, scroll bars, and button clicks, many service components in the cloud, such ascredit-card verification and billing, are like Lego blocks: pre-built and ready to be snappedinto applications. “Document Management in the Cloud and the Future of Cloud Computing,” Cloud Issues, May 20121 2 The NIST Definition of Cloud Computing: Recommendations of the National Institute of Standards and Technology, Special Publication 800-145, U.S. Department of Commerce Clearing the Fog from Cloud Computing 2
  • 3. Access to the cloud is fast and inexpensive. Cloud computing does not require large capitalinvestments in infrastructure, technology, applications, or platforms. The cloud’s architectureoffers flexibility, which is essential for accommodating sudden shifts in demand, and is accessiblefrom a broad range of devices. Companies in the cloud can respond faster and more effectivelyto business needs and customers, which by extension often means improved productivity, moreinnovation, and faster go-to-market strategies (see sidebar: The Cloud’s Silver Lining).A good cloud-computing strategydoes not ignore the business strategy—it embraces it.So far, the cloud is primarily deployed in areas with minimal concerns, such as email, backup,storage, and testing. In the next few years, as standards are established around data securityand storage, we expect to see the cloud in many other areas—and, not surprisingly, creatingmore profitable businesses.Cloud Computing Business ModelsThe financial and capability benefits realized by companies leveraging cloud computingcan be profound. There are few upfront capital requirements (at least for external cloudcomputing), and the costs are more variable, making cloud computing very attractive fromThe Cloud’s Silver LiningCompanies large and small can needed, companies can couple Royal Mail. This government-use cloud-based architectures computing-resource supply with owned group delivers daily postalto save money in operations and actual demand. services to every household in theIT staffing, but doing so requires United Kingdom through itsassessing and prioritizing Miami. This South Florida city network of 10,000 post offices,applications and infrastructure built an online system for tracking handling more than 400 millionservices that are best suited non-emergency incidents that parcels a year.3 To improve costsfor the cloud. Three businesses includes advanced mapping and efficiency, Royal Mail beganillustrate how the cloud can capabilities and the ability to evaluating cloud-computingbe used to cut costs and scale up in the event of natural solutions, attracted by flexibility,improve efficiency: disasters. By building the system the ability to manage capacity on the Microsoft Windows Azure directly, and no upfront capitalIntuit. Well-known tax-preparation platform, developers took investments. So far, the projectsoftware manufacturer Intuit has advantage of on-demand has virtualized up to 400 servers,a seasonality problem. Almost computer and storage services. creating an internal private-all usage of its online services Miami, threatened each year by server cloud platform withhappens in two bursts of activity hurricanes, delivered a cost- continual access to hardware andin February and April. This type of effective, reliable system that data storage, and is on target toproblem can be solved by retaining automatically expands to meet deliver major savings andthe services of an IaaS vendor. high-usage requirements. improved response times.By buying cloud time only when “Royal Mail Virtualizes Server Farm to Save £1.8 Million in Four Years,” Microsoft Case Studies, November 20103 Clearing the Fog from Cloud Computing 3
  • 4. a yearly budgetary cycle perspective. The total cost of ownership can also be increasinglybeneficial as upgrades are borne by large scale architecture changes for the provider.4In developing a cloud computing business model, we often demonstrate to our clients fouroptions depending on their focus, ambitions, and maturity: Virtual Voyager, Architect, NetworkNative, and Mobile Mover (see figure 2). Each one comes with opportunities, implications, andtradeoffs, depending on the extent to which the organization wants to capitalize on the cloudand the consequences of extending, or even reinventing, an existing business model. Thefollowing offers more detail about each model.Figure 2Cloud business models • Improves flexibility and capitalizes on improved time-to-market and reduced costs Virtual Voyager • Leverages technology to access virtual computing resources, including software, operating systems, processors, peripherals, and networks • “Virtualizes” select components of the business into the cloud Architect • Uses cloud-based solutions to enable entire business processes via a common automation platform • Provides one-to-one interactions with customers and integrates information in ways not always possible through other channels or technologies Network Native • Performs processes externally and has the potential to create new business model opportunities • Leverages mobility to create new business models for mobile customers Mobile Mover • Expands on Network Native model to feature full cloud-based technologiesSource: A.T. Kearney analysisVirtual VoyagerCloud computing, for all the hype, is a virtual computing resource that offers flexibility andspeed via remote access to software, operating systems, processors, peripherals, and networks.The Virtual Voyager introduces five distinct platforms as building blocks (see figure 3 on page 5):Software as a service (SaaS). The most mature platform, SaaS consists of software packageshosted and delivered via a public or private network. Salesforce.com is a good example as itsells customer relationship management (CRM) software via the Internet on a per-use andper-transaction basis.5Platform as a service (PaaS) bundles databases, web servers, and development tools and sellsthem as a package. Both Google App Engine and Amazon’s EC2 are in the PaaS family, sellingaccess to software but not the installation headaches.Infrastructure as a service (IaaS). IaaS is all about virtual servers, extended networks, andremote storage. No more large hardware investments, maintenance, or infrastructure upgrades.4 See Finding What Every ICT Services Provider Craves: Healthy Profits at www.atkearney.com. See SaaS: Managing the Anti-IT Application at www.atkearney.com.5 Clearing the Fog from Cloud Computing 4
  • 5. Figure 3Virtual Voyager has several distinct platformsDegree Technical Business andof sharing services digital services IaaS PaaS SaaS BPaaS iMobilityPublic cloudexternal Dynamic Integration as Application Dynamic BPO DynamicVirtual private infrastructure a service as a dynamic service informationcloud hybrid service service service Virtualization Virtualization Virtualization Business process InformationPrivate cloud infrastructure middleware applications virtualization virtualizationinternal database (shared service center) Infrastructure Middleware Applications Information Information database processes brokerageNote: IaaS is infrastructure as a service, PaaS is platform as a service, SaaS is software as a service, BPaaS is business process as a service,BPO is business process outsourcing.Sources: A.T. Kearney analysisFor those who miss the hardware, no worries: Some IaaS providers offer supercomputingservices for a per-hour charge. AT&T’s Synaptic Hosting is an IaaS poster child.Business process as a service (BPaaS). Like IaaS, BPaaS is a hardware-free, end-to-end servicethat has helped Avaya, Echopass, and Verizon set up call centers complete with phone lines andcomputing capacity in as little as 60 days and activate additional resources quickly whendemand spikes.iMobility. iMobility represents a dramatic shift in personal communications as smart phones,tablets, netbooks, and laptops allow people to stay on the go and connected. iMobility ispossible because of cloud vendors with immense global IT infrastructures, including datacenters and cell towers.ArchitectThe Architect goes a step further to “virtualize” select business components into the cloud.It sidesteps technology silos to offer an external network platform from which to automateprocesses and manage business processes. When the data model and the workflow managementapplication are both cloud based, workers across the organization can log in and work seamlesslyon different aspects of a project.Virtualization introduces a new layer of abstraction into computing that can make it more mobileand resilient. A task used to be done on a specific machine’s processor and its data stored ina specific hard drive. With virtualization, the task and storage exist independently of particularhardware—they can be reassigned if capacity is a problem or if there is a hardware failure. Endusers no longer need to worry about where data is stored and processed, but they will of coursewant to know that their systems will be available and that redundancy and backup are provided. Clearing the Fog from Cloud Computing 5
  • 6. For example, a bank managing workflow among its many retail branches might use the cloudto speed up processing. Architects and engineers designing a production plant can accessthe same data and computer-aided design packages to achieve a faster, more collaborativeoutcome no matter where they are in the world. Human resources, finance, claimsmanagement, research, procurement, and even sales and marketing functions can all benefitfrom a cloud-based setup. And the service can be achieved relatively quickly because itresides outside the existing IT landscape.The cloud is also an excellent venue for capturing customer insights—providing an integratedview of the various channels customers use for researching, commenting on, ordering, and ratingproducts. A visit to an e-commerce website generates a treasure trove of data from per-pagedwell time, link patterns, and products viewed to items added to wish lists and shopping carts.Service components in the cloud, such ascredit-card verification and billing, are likeLego blocks: pre-built and ready to besnapped into applications.Network NativeThe Network Native is a cloud-based business model with very few processes occurring outsideof the cloud. Network Natives are focused on one-to-one interactions with their customers andthe superior, timely integration of information.For Network Natives, cloud computing means conducting processes externally, with thepotential to open up new business opportunities. For example, 3M launched a cloud-enabledservice called Visual Attention Service (VAS), which gauges customer reaction to visual imagery.Outside advertisers and designers visit the 3M website and, for a fee, can upload an image to beanalyzed. In just minutes, the system provides a detailed report, heatmap and all, of the design,highlighting where the average person’s eye is drawn. Because the service is cloud based, 3M’supfront investment is minimal and its pricing model is pay-as-you-go.Another example comes from the healthcare industry and its many players, from doctors andpharmaceutical companies to insurers, hospitals, and patients. With patients’ medical recordsscattered among various players in multiple locations, cloud providers are reaching out tohealthcare professionals, offering help in organizing, storing, and sharing health informationonline. Quest Diagnostics, for example, posts lab results in the cloud, making the informationreadily available to both patients and healthcare professionals.Pharma companies, especially those heavily invested in R&D, are using the cloud and teamcollaboration tools to shorten the time to market for drugs. In mobile telecom, Giffgaff, a UKmobile operator, operates totally through the cloud and social media—no retail distribution,no big-budget advertising, no sprawling call centers. About 20 percent of Giffgaff customers,known as giffgaffers, get all the information they need from a user-generated pool of knowledgein their online, cloud-powered community. Clearing the Fog from Cloud Computing 6
  • 7. For smaller companies, the cloud can help them compete on a level playing field and breakdown barriers to entry, allowing them to rent capabilities via the cloud versus making largecapital investments that can delay market entry.Mobile MoverThe Mobile Mover is an extension of the Network Native, using mobility to create new businessmodels. The main difference is that these customers are mobile while Network Native customersare both static and mobile.As more people become digital consumers, the way products and services are delivered andconsumed is changing—and so is how organizations set up their business models and supplychains. For example, iMobility—linking cloud-based business models to mobile consumers—requires both an always-on device and access to an always-available network (fixed line, 2G,3G, 4G, or WiFi). For example, a customer who gets bad service at a restaurant might forgetabout or delay writing an online review until he gets home to his computer. But a customerwith a smartphone can access a site such as Yelp or Zagat and instantly submit a review whilewaiting for a long-overdue check. Facebook, with its focus on collaboration and mobility, hasbeen a leader in this area for some time and is now a platform for other applications, such asAnimoto and Real, which take advantage of on-site interactions.The co-creation of customers and value, often tied to real-time updating, is having a dramaticimpact on customer expectations and company value chains.Getting Up on the CloudAt first glance, implementing cloud computing may seem daunting, but it doesn’t have to be.In our work with clients, we position the process as it takes place in three stages:Align the cloud-computing strategy with the business strategyA good cloud-computing strategy does not ignore the business strategy—it embraces it. Thereis a huge financial advantage in leasing capacity and storage from a shared environment. Banksinvolved in algorithmic trading need real-time market data, so they align their cloud strategywith their business strategy. Online software companies use cloud computing to emphasizeperformance and scale quickly. These firms launch many different products hoping onecatches on, and when one does, they have to quickly scale to gain the advantage. Instagram,the online photo sharing software, is a good example because it used the cloud to capture itswindow of opportunity. Companies that offer mobile information services, such as drivingdirections, use cloud computing to build global capacity. Retailers, especially low-cost leaders,capitalize on the cost reduction and cost avoidance aspects of cloud computing to expandtheir reputations and customer base.Identify cloud candidatesFirst-time cloud strategists should begin with quick-win projects. Replacing servers that have lowusage levels or are near or at end of life with an IaaS offering is a good starting point. Migratingsoftware development or testing to the cloud is also a good beginning strategy. These areas areoften built up, taken down, and rebuilt, which means they offer three advantages: flexibility to use Clearing the Fog from Cloud Computing 7
  • 8. on-demand resources, automated processes to reduce the setup time, and reduced time andexpense. There is no need to purchase, rack, or connect servers because these are not neededafter development and testing.Medium-term cloud projects will require more time and effort. Applications already running ona virtualized server are good candidates because end users and system administrators are familiarwith virtualization and applications and the systems are using standard protocols. Longer-termcloud projects will require significant investment, but they also deliver significant returns. Theseare the cloud-based services that are available 24-7 in all locations, such as music players. Theyrequire a global infrastructure and advanced knowledge of cloud-computing technology.Choose a cloud business modelSelect the model that makes the most sense for your company, customers, and ITdepartment (see figure 4). Ideally, the corporate IT organization will lead cloud-servicedesign, implementation, operations, and process management. This way, it is possible toconsolidate scale, buying power, skills, and internal experience to deliver the best possibleservice to internal customers—the business units. Corporate IT might also consider fundingcloud venture projects in collaboration with business units. This reduces the barriers toadoption that can arise with already tight IT budgets. And to increase the likelihood that thebusiness units get the most out of cloud computing, projects should be staffed with enterprisearchitects who understand the business needs and the drivers behind cloud service designs,including architecture, security, and compliance requirements.Figure 4Each cloud business model offers a unique value proposition High Architect Mobile Mover Deploy cloud-based processes Create new business models and data models for mobile customers More potentialLeverage full valuecapabilities More immediateof the cloud and achievable value Virtual Voyager Network Native Leverage virtual computing resources Perform business processes externally in cloud Low Low Extend existing business model HighSource: A.T. Kearney analysis Clearing the Fog from Cloud Computing 8
  • 9. Lessons to be LearnedAs with every move to a new system, technology, or process, the experiences of those who havealready been down this path cannot be overstated. In the case of cloud computing, we haveseveral lessons to share from our work with clients:Management style. Cloud computing changes everything for corporate IT, which meanspolicies and management style will have to change. All new initiatives and technology strategiesmust be viewed through a cloud lens as cloud computing becomes a viable option. Regulatoryand corporate compliance rules will have to reflect the differences between cloud computingand legacy systems. For example, we helped one client develop data-classification policies toindicate which types of data can reside in a multi-tenant environment for security and accessreasons. At the same time, requiring physical inspection of data-center facilities may no longerbe reasonable as cloud vendors often have data centers across the globe.Operating a cloud-computing environment will also require different capabilities. Manualprocesses will be automated, and corporate IT professionals will need very good vendormanagement skills to manage multiple virtual components from different cloud vendors.It may also be necessary to rethink traditional service-level agreements (SLAs) becausecloud-service providers could be held accountable for the end-user experience.The cloud changes everything forcorporate IT, which means policies andmanagement style will also have to change.Partnerships. Corporate IT and the business must become close partners. Cloud computingcan transform a business, but only if the business and corporate IT are in lockstep to captureall the benefits and synergies. Make no mistake, business users will become more importantto corporate IT as they deal directly with technology services. And costs will rise if IT is notinvolved in the selection, acquisition, and support of cloud services. The proliferation ofapplications must be avoided at all costs.Flexibility. IT will have to meet users’ needs—even as customers are in more locations, askingfor more access and more information, and are always connected via their mobile devices. Ifa company’s solution is insufficient in any way, customers will become dissatisfied, and saleswill be lost. The key is to be systematic in developing data that identifies new usage patterns,business models, and revenue opportunities. Top companies ensure that the business and itsIT partners work together to identify and respond to users’ changing expectations.Knowledge capital. As business processes are outsourced to cloud providers, IT will have to staycurrent—able to execute all business processes even as they are altered. Relinquishing knowledgeand aptitude is dangerous. It is never pleasant to be held hostage by a low-performing cloudservice provider. Clearing the Fog from Cloud Computing 9
  • 10. Data. Managing customer data is essential. Although it is necessary to trust cloud vendors withcompany data, sound data-security policies must be in place to support acceptable risk levels.For example, customer data can remain anonymous before it is transmitted to the cloud, thusreducing the risk that data loss directly affects customers.Moving Into the MainstreamThe cloud represents a significant shift in the way business manages computing and isquickly developing a mainstream presence. In building a cloud capability, there are businessmodels to consider and steps to take, each with immediate opportunities and long-termimplications. Although the cloud is not without significant challenges, it is also not withoutsubstantial business potential. What’s important now is moving the cloud to the forefrontof IT strategy planning. This is not an area where it is possible to catch up. In the cloud, oncebehind could mean always behind.Authors Christian Hagen, partner, Chicago Michael Roemer, partner, Munich christian.hagen@atkearney.com michael.roemer@atkearney.com Marco Ciobo, principal, Melbourne Diego Cartagenova, marcello.ciobo@atkearney.com consultant, Dubai diego.cartagenova@atkearney.comThe authors wish to thank Jim Lee for his valuable contributions to this paper. Clearing the Fog from Cloud Computing 10
  • 11. A.T. Kearney is a global team of forward-thinking, collaborative partners that deliversimmediate, meaningful results and long-term transformative advantage to clients.Since 1926, we have been trusted advisors on CEO-agenda issues to the world’sleading organizations across all major industries and sectors. A.T. Kearney’s officesare located in major business centers in 39 countries.Americas Atlanta Detroit San Francisco Calgary Houston São Paulo Chicago Mexico City Toronto Dallas New York Washington, D.C.Europe Amsterdam Istanbul Oslo Berlin Kiev Paris Brussels Lisbon Prague Bucharest Ljubljana Rome Budapest London Stockholm Copenhagen Madrid Stuttgart Düsseldorf Milan Vienna Frankfurt Moscow Warsaw Helsinki Munich ZurichAsia Pacific Bangkok Melbourne Singapore Beijing Mumbai Sydney Hong Kong New Delhi Tokyo Jakarta Seoul Kuala Lumpur ShanghaiMiddle East Abu Dhabi Johannesburg Riyadhand Africa Dubai ManamaFor more information, permission to reprint or translate this work, and all other correspondence,please email: insight@atkearney.com.A.T. Kearney Korea LLC is a separate andindependent legal entity operating underthe A.T. Kearney name in Korea.© 2012, A.T. Kearney, Inc. All rights reserved.The signature of our namesake and founder, Andrew Thomas Kearney, on the cover of thisdocument represents our pledge to live the values he instilled in our firm and uphold hiscommitment to ensuring “essential rightness” in all that we do.