Does Cloud Matter?


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In 2003 and 2004, Nicholas Carr asked the question, "Does IT matter?" In the process he touched off a hailstorm of debate and criticism. As IT shifts more toward a cloud-based service delivery model, it's reasonable to ask if cloud matters.

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  • Elevator Pitch: ServiceMesh has been around since 2008 (really late 2007). If you wanted to really to simplify it… we’re a software company in the Cloud Mgmt space… although that’s a very limiting description. More accurately, what ServiceMesh really does is help large enterprises adopt what we call “Agile IT operating models”. (Cloud is part of this…but its much more than just cloud… which I’ll explain shortly). As a company, we’ve been working on these challenges since 2008 with large enterprise customers…before cloud computing became such an overused buzzword. And we feel fortunate to have gotten a good head start on where IT is headed today with cloud… particularly from an enterprise perspective. Our customers are Global 2000… most with very complex, highly regulated, competitive environments….. Some with annual IT budgets exceeding $1B.ServiceMesh itself is a global company. We have customers in NA, EMEA, and AP. Austin is Dev center. LA contains a good portion of the exec mgmt team.
  • Does anybody know who this guy is? I’ll give you a hint: In 2003, you definitely would have heard of his work if you worked in IT, because he said it didn’t matter.
  • Nicholas Carr is the former executive editor of Harvard Business Review. For the last several years, he has been writing a series of articles and books about IT and business strategy. He started back in 2003 with “IT Doesn’t Matter” and has been developing a series of ideas over the remaining years. The ideas that we’re going to look at in this talk come from “IT Doesn’t Matter,” “The End of Corporate Computing,” and “The Big Switch.” In general, Carr has been a big proponent of what was called utility computing back in 2003, which we now call cloud computing. In general, I think Carr gets a lot of things right in his works, but he misses some things, too.
  • So, to start off, let’s take a look at Carri’s ideas. His fundamental thesis can be summed up like this…
  • Carr’s argument is that new technology will often confer some sort of strategic advantage over your competition, but only if you adopt it before they do. Now, I live in Texas, and we have a saying down there that you should never bring a knife to a gunfight. New technology in this case is represented by the gun and old technology by the knife. Simply put, when you come up against your competitors in the market place, you want to either have the advantage or an even fight, but you never want to be caught with the knife when the other guy has a gun.
  • As an example, Carr talks about industrial production. Now, back 150 years ago, if you built a factory, you didn’t have a lot of options for how you would power it. You’d probably want to locate it next to a river in order to harness the power of the flowing water, using a water wheel. Your other choice might be a steam engine and you’d want to have a large supply of, let’s say, coal and water nearby in order to keep the engine running. From the water wheel or steam engine, you’d run a series of gears, shafts, and belts throughout the factory to distribute the power within the factory, but that was fairly inefficient and only worked for a very short distance. Your factory would have to be located right next to your power source.
  • But, a funny thing happened. We learned how to harness the power of electricity, and suddenly all the rules changed. When electricity first came on the scene, many companies simply replaced the water wheel or steam engine on the side of the factory with electrical generators, but they didn’t replace the gears and pulleys that distributed the power. They simply viewed the electrical generator as a replacement for the old power source. More forward-looking companies, however, realized that you could run wiring all the way to the workstations and then install electric motors at the station to perform the work. This was far more efficient and productive, and those companies gained a competitive advantage.At first, however, everybody built the own supply, In addition to building whatever your primary product was, you also had to be in the power generation business.Now, over time, people figured out that not only could you distribute electricity within the factory, you could run it over long distances. Some folks noticed that it was inefficient for each factory to generate its own power. It was far more efficient, they reasoned, to generate the power in a more central location and then run the wires all the way out to each factory. Over time, that became the norm, and unless companies had a special need, they hooked themselves to the central power grid and bought they power from an electric utility.
  • Now,an interesting fact about useful technology is that everybody wants it because it’s useful. Rising investment follows the rising demand, which drives rising volume, which then drives lower costs, which then makes the technology available to everybody.In the technology market, we see this all the time. Does anybody know who this guy is? I’ll give you a hint: In the IT business, he’s the law.The man shown here is Gordon Moore, one of the founders of Intel, and the man who came up with “Moore’s Law” in 1965 to describe the trends he saw in semiconductor manufacturing. As the result of increasing transistor densities, information technology has been getting more powerful and cheaper every year.
  • The result of this is that over time, the competitive advantage associated with new technology dissipates. Going back to our analogy, when everybody has a knife, the first competitor to get a gun has a big advantage. Eventually, however, the price of guns falls to the point where everybody can afford one. At that point, the first guy to own a bazooka has a huge advantage over the folks with guns. Now, it’s important to note that in a world where most everybody owns a gun, there is little advantage to having one, but there is a big disadvantage to having only a knife. For example, in 1997, there was an advantage in having an ecommerce web site if your customer base was tech-savvy, as sites like found. But in 2011, there is no advantage in having a web site. All your competitors have web sites. In fact, everybody has a web site these days, from small businesses, clubs, and even kids. I don’t think I’d even patronize a business that didn’t have a web site.
  • When Carr says that “IT doesn’t matter,” this is the phenomenon that he’s talking about. Carrbelieves that IT has reached that point where it’s a commodity. Everybody has it, and therefore, the marginal strategic advantage of it is greatly diminished. Because of this, he says, we should manage IT like any other undifferentiated commodity input to our business – get the most bang for the buck and move on. Optimize the spend and the ease of delivery and consumption, and then turn your focus to other things.
  • In the conclusion to “IT Doesn’t Matter,” Carr writes…
  • So, the question is, isCarr right? Is IT really a commodity, to be purchased at the lowest cost possible? In 2003, when “IT Doesn’t Matter” was written, there was a huge controversy. The original article was one of the most talked about in the industry and generated the largest number of letters to the editor that Harvard Business Review had seen.
  • To give you the summary answer… YES.
  • As far as Carr goes, but there is a lot more nuance that we need to understand and specifically, and the nuance is important. That’s particularly the case regarding cloud computing.
  • I think Carr overall articulates the right principles, but he wraps it in an overly provocative delivery, which then resulted the poor reception.
  • What Carr said was, “IT doesn’t matter.” It’s right there in the title. That’s a winner title if I’ve ever seen one.
  • The problem is that IT is not as simple as electricity. When you’re talking about electricity, you’re talking about the generation and distribution of electrons. The words “information technology” encompass a lot more variation than that. And because of that, it’s really more useful to view IT spending as being distributed across a broad spectrum.
  • At one end of the spectrum, Carr is right, some IT spending just doesn’t matter. This is spending that has very little business effect. It isn’t visible to your customers and it doesn’t give you any strategic advantage in the market. You need to have these capabilities, because you don’t want to be the only one without a gun in the market place, but you don’t get any differentiation out of it. You’ll need to have an accounting system and a web site, for instance, but those don’t move the needle with customers any more.
  • Now, at the other end of the spectrum, there is IT spending that still does move the needle. These are things like… <<< EXAMPLES?? >>>
  • It is well-known in the IT industry that between 60% - 80% of an enterprise’s IT budget goes into support and maintenance, while only 20% to 40% goes into new initiatives. We always seem to view this statistic with a traditional pie chart, and we nod our heads in agreement, and frown at the implication.
  • By the way, you should also know that 80% of all 80/20 rule citations are completely bogus, so whenever anybody shows you one, take it with a grain of salt.
  • Now, back to our spending continuum. It’s tempting to say that all the maintenance spending is stuff that doesn’t matter, while all the new initiatives do matter. More than once, I have talked with people about the 80/20 spending split, and every time, there is a simplistic view that we should stop spending money on maintenance and start spending it on the latest and greatest. That might be fun for IT people because it means more new projects, but that’s a naïve way to look at the world.
  • The reality is, a lot of new projects involve spending on thing that don’t matter. Examples include things like provisioning buying and provisioning new servers, creating LUNs to hold the data in the storage array, and performing backups on the new system.
  • On the other hand, there is spending that needs to be done on older systems that is stull impactful for customers. For instance, there is always more optimization to do on our primary web site, particularly if it involves delivering a better conversion rate for an ecommerce site. We might also want to spend money on our support system to further optimize the customer experience. For instance, Amazon is constantly reworking its main web site to deliver a more helpful, and therefore more profitable customer experience. That “web site” has been around for almost two decades now, and yet these things matter to customers, and therefore Amazon, so it keeps working on the site.
  • In reality, rather than thinking about maintenance being bad, and new projects being good, we really need to get into the habit of thinking about things that matter to customers and things that don’t. As much as possible, we want to shift our spending to the things that matter. When it comes to those things, we want to move fast and seize any temporary advantage that might exist in the market before our competitors can. In short, we want to create guns first, whenever possible.
  • Agile information technologies, including cloud computing, can help us make this shift. In Carr’s article, I think he focused only on the cost reduction side of the equation. While he is certainly a cheerleader for utility and cloud computing, he simply sees them as a way to manage the delivery of commodity IT services at the optimal price. He doesn’t spend a lot of time talking about how this technology can help deliver applications and features to users that do matter. That’s one reason I think people jumped on his original article. It tried to reduce IT to a strict price optimization.
  • ServiceMesh can help with this. We make software products and deliver services that can help you move to cloud with an eye toward shifting your investment strategically to favor things that matter.
  • Remember that you always want to be looking for technology that will give you an edge, allowing you to bring a gun to a knife fight.
  • Early on, as you identify those technologies, you’ll probably be forced to implement them yourself because they’ll be so new that nobody else will be able to deliver what you require (and you won’t even really know what you require until you’ve had some time to use the technology). At some point, however, if the technology is valuable, prices will fall, and all your competitors will implement the same technology. At that point, the technology is no longer a strategic differentiator, and you should look to consumer it as a service from somebody else.
  • As you start to consume the technology as a service, that will free up capital that would otherwise go toward building it yourself and you can shift that capital toward projects that really matter to your customers, the still create strategic differentiation. And, as I said before, when it comes to Agile IT and cloud computing, ServiceMesh is quite good ag this can can help you get started.
  • In order to make this model of first implementing it yourself and then shifting toward consumption of a service as the technology commoditizes, you’ll need to switch your operating model, how your IT department functions. You’ll need to formalize this process across the whole department and follow it rigorously.
  • As part of that overall process change, you’ll want to follow these simple rules…
  • So, at the end of the day, if we, the IT world, go down this path, does IT start to become boring, as Carr said?
  • I think the answer is NO. But that’s because we’re always identifying the stuff that really matters to our customers, and then focusing our time and attention. And nothing is more rewarding that meeting the needs of our business unit customers and creating demonstrable customer result. Simply, we need to keep our focus on stuff that matters.
  • Does Cloud Matter?

    1. 1. THE AGILE IT PLATFORMDoes Cloud Computing Matter? Dave Roberts Vice-President, Strategy Company Twitter: @servicemesh Personal Twitter: @sandhillstrat
    2. 2. Who is ServiceMesh?• Provider of Agile IT and cloud computing governance, security and lifecycle management software and services for Global 2000 clients• Customers include some of the world’s largest and most sophisticated companies in: – Financial services – Health care – Consumer – Other IT-intensive industries• Global presence with headquarters in Los Angeles and offices in Austin, London, New York, Sydney, and Washington D.C. 3X revenue growth in 2010 3rd consecutive year of profitability 2
    3. 3. 3
    4. 4. Nicholas Carr• Former executive editor of Harvard Business Review• 2003: – HBR: “IT Doesn’t Matter”• 2004: – Book: Does IT Matter?• 2005: – MIT Sloan Management Review: “The End of Corporate Computing”• 2008: – Book: The Big Switch – The Atlantic: “Is Google Making Us Stupid? What the Internet is doing to our brains”• 2010: – Book: The Shallows: What the Internet is Doing to Our Brains 4
    5. 5. Carr’s thesis is…(from “IT Doesn’t Matter,” “The End of Corporate Computing,” and The Big Switch) 5
    6. 6. 6
    7. 7. 7
    8. 8. 8
    9. 9. 9
    10. 10. 10
    11. 11. Cloud 11
    12. 12. “IT management should, frankly, becomeboring. The key to success, for the vastmajority of companies, is no longer to seekadvantage aggressively but to managecosts and risks meticulously.” - Nicholas Carr, “IT Doesn’t Matter” 12
    13. 13. Is Carr right? 13
    14. 14. 14
    15. 15. There’s more a LOT more nuancethat we need to understand. 15
    16. 16. Right principles.Provocative delivery. Poor reception. 16
    17. 17. “IT Doesn’t Matter” 17
    18. 18. What people heard: “ Don’t spend any money on IT. Don’t do anything new or novel. ” 18
    19. 19. What he really said: “ Spend on competitive differentiation. ” 19
    20. 20. IT Spending Continuum 20
    21. 21. IT Spending ContinuumSpending here represents expense, with littlecustomer-visible business effect. 21
    22. 22. IT Spending Continuum Spending here represents investment with big payback in revenue or competitive position. 22
    23. 23. IT Spending20% New Initiatives 80% Maintenance 23
    24. 24. 80% of all 80/20 rule citations are bogus 20% Real 80% Bogus 24
    25. 25. Naïve View 25
    26. 26. Some New Stuff Doesn’t MatterNew server provisioningLUN creationBackups 26
    27. 27. Some Old Stuff Does MatterOptimizing the customer experienceIncreasing the conversion rateSimplifying the support path 27
    28. 28. GoalReduce cost Move fastManage risk Seize the advantage Shift your spending. 28
    29. 29. Cloud MattersReduce cost Increase agility 29
    30. 30. ServiceMesh Can Help Software Services Solution Accelerators 30
    31. 31. How do you know what matters? 31
    32. 32. Adopting clouds does not absolveyou of the responsibility to think. 32
    33. 33. “The biggest impediment to utility computing[cloud] will not be technological but attitudinal. Asin the shift to centralized electrical power, theprime obstacle will be entrenched managementassumptions and the traditional practices and pastinvestments on which they are founded.” - Nicholas Carr, “The End of Corporate Computing” 33
    34. 34. Need to change your IT operating model. 34
    35. 35. Previously, you spent a lot of time and energy building everything. 35
    36. 36. Need to switch to thinkingabout building and consuming. 36
    37. 37. Adopt aneverything-as-a-service mentality. 37
    38. 38. Always question whether somebody else could be doing it. 38
    39. 39. Contestability 39
    40. 40. Contest-ability 40
    41. 41. Contest-ability 41
    42. 42. 1. Create contestability. 42
    43. 43. Internal vs. External (Build vs. Buy) 43
    44. 44. External vs. External(Supplier vs. Supplier) 44
    45. 45. 2. Standardize ruthlessly. 45
    46. 46. Force BUs to foot the cost of custom engineering. 46
    47. 47. 3. Run IT like an internal business. 47
    48. 48. Treat your business units like customers. 48
    49. 49. Your business units already see you as a supplier(but probably a poor one). 49
    50. 50. If you can stay “in business”(without corporate subsidies), then it probably “matters.” 50
    51. 51. Summary 51
    52. 52. 52
    53. 53. 53
    54. 54. Goal Software ServicesSolution Accelerators 54
    55. 55. Switch your IT operating model. 55
    56. 56. 1. Create contestability. 2. Standardize ruthlessly.3. Run IT like an internal business. 56
    57. 57. Will IT become boring? 57
    58. 58. NoNot if you focus onstuff that matters. 58
    59. 59. Thank You Thank youDave RobertsVice President, StrategyEmail: dave.roberts@servicemesh.comWeb: Twitter: @servicemeshPersonal Twitter: @sandhillstrat 59