Summary of "Economic Efficiency of Cloud-Based Application Services" monograph ( http://dx.doi.org/10.13140/RG.2.2.22188.56969 )

1. © 2017 Nokia1
Overview of “Economic Efficiency of
Cloud-Based Application Services”
Eric Bauer
November 2017

2. © 2017 Nokia2
The Practical Question
Exactly how does the
economic flow of services
and value change so that
reduced intensity of
economic resource inputs
(i.e., lower unit cost of
service production and less
wastage from
overproduction) is feasible
and likely?
The Theory The Practical Question
https://twitter.com/humawebagency/status/435449136213544960

3. © 2017 Nokia3
Cloud Computing Value Chain
Software
Supplier
Software
Supplier
Software
Supplier
Software
Supplier
Software
Supplier
Cloud service
providerCloud service
providerCloud Service
Provider
Electricity
providersElectricity
providersElectricity
providers
Infrastructure
Equipment
Suppliers
Infrastructure
Equipment
Suppliers
Infrastructure
Equipment
Suppliers
Infrastructure
Equipment
Suppliers
Cloud
Service
Customer
Cash
Value
End
Users
Application
Service
Infrastructure, Platform &
Functional Components
as-a-Service
VNF Software Hardware
Power
Cloud-based applications
consume resources on-demand
on a pay-as-you-go basis
Cloud service providers operate multi-tenant pools of
infrastructure equipment to support rapid elasticity and
scalability of resources available to cloud service customers
Consider cloud
service customers’
economic efficiency
Chapter 2 – Service, Value and Business Results

4. © 2017 Nokia4
Input-Output Model of Cloud-Based Application Service Production
Cash
Value
CORE + VARIANCE
CAPACITY
Application Service
Operation
Resource Inputs
From Cloud Service
Provider(s) and Suppliers
Output
To End
Users
Virtual Compute, Storage
and Networking
Application Software
(usage)
PNFs
Functional-Component-
as-a-Service (usage)
Staff
Operations and Support
System (usage)
Management and
Orchestration (usage)
COST
PRODUCTION
DEMAND
WASTE
RESERVE CAPACITY
Application
Production
ChainSURPLUS
Service
Production =
Efficiency
Output
Input
Capacity Wastage is the incremental cost to the
organization of surplus (wasted) online application capacityChapter 3 – Understanding Efficiency

5. © 2017 Nokia5
12:00AM
1:00AM
2:00AM
3:00AM
4:00AM
5:00AM
6:00AM
7:00AM
8:00AM
9:00AM
10:00AM
11:00AM
12:00PM
1:00PM
2:00PM
3:00PM
4:00PM
5:00PM
6:00PM
7:00PM
8:00PM
9:00PM
10:00PM
11:00PM
12:00AM
Capacity Wastage of Application Service Production
Surplus Capacity
Core Capacity
Variance Capacity
Reserve Capacity
Capacity Wastage is
incremental cost of
resources producing surplus
online application capacity
Real-Time Operation
Target Online Capacity
User Demand
Chapter 3 – Understanding Efficiency

6. © 2017 Nokia6
Modeling the Application Service Business
Business
Strategy &
Operations
Service
Creation
(consumes
investment)
Service
Operation
(produces
revenue)
BUILD – create a specific
service release. Fixed costs that
do not vary with usage.
RUN – operate a specific
service release in production.
Variable costs based on usage.
OVERHEAD – not tied to number of
releases/builds or actual service usage,
e.g, business strategy, supply chain
management, human resources.
Not considered by cost model.
Chapter 4 – Framing Application Activities

7. © 2017 Nokia7
Key Efficiency Indicators
Financial Performance
RevenueExpenses
Business/
Other
(OVERHEAD)
Costs
Service
Production
(RUN)
Costs
Service
Creation
(BUILD)
Costs
Cost of Creating
Functionality indicator
Unit Cost of
Service Production
and
Cost of Capacity
Wastage indicators
End user demand for service
production generates Revenue
Chapter 17 – Cost of Creating Functionality
Chapter 18 – Unit Cost of Service Production
Chapter 19 – Cost of Capacity Wastage

8. © 2017 Nokia8
Dynamic, Time-Driven, Activity-Based Cost Model
Resource
Layer
Cost
Layer
Activity
Layer
Final
Object
Layer
Customer CareApplication Operation
Service-Level
Activities
Capacity Decision
& Planning
Software Release
Planning
Other Decision &
Planning
Software Disposal
Planning
Monitoring &
Surveillance
VNF-Level
Activities
Capacity
Change Actions
Software
Install/Update
Other Action
Execution
Software
Disposal
Unplanned
Maintenance
Service
Production
PNF Execution
VNF Execution
X-as-a-Service
Execution
Care
Activities
User Request
Fulfillment
Problem
Management
Build
Activities
Requirements
Architecture
Design
Implementation
Integration
Testing
Canonical Resource Dictionary
 Virtual compute resources
 Virtual storage resources
 Virtual network resources
 Application software (usage)
 Functional components as-a-
service (usage)
 Management and
orchestration service (usage)
 Staff
 Operations and support
systems (usage)
 Physical network functions
Chapter 5 – Cost Modeling Cloud-Based Application Service

9. © 2017 Nokia9
Process
Business
Operating
Model
Efficiency Improvement Strategies
 Quantitative Key Efficiency Indicators
 Minimize Wastage
 Optimize Business Scope of Value Chain
 Effective Risk Management
 Optimize Returns to Scale
 From CapEx to Demand-Driven OpEx
 Effective Business Management
Technology
Efficiency improvement strategies in GREEN
FONT are detailed in separate chapters
 Cloud computing
 Automated management and
orchestration
 Improved tools
 More efficient technologies
 Efficiency Improvement Levers:
1. Automation
2. Agile Service Creation
3. Scalable Capacity
4. VNF Efficiency
5. Advanced Self-Service
6. Advanced Cost Modeling
 Lean ThinkingMethods,
Procedures
& People
 Automated Methods & Procedures
 Agile Service Creation
 Improved skills and training
Chapter 6 – Efficiency Improvement Strategies

10. © 2017 Nokia10
Application Service Production Efficiency Improvement Levers
Resource
Layer
Cost
Layer
Activity
Layer
Final
Object
Layer
Customer CareApplication Operation
Service-Level
Activities
Capacity Decision
& Planning
Software Release
Planning
Other Decision &
Planning
Software Disposal
Planning
Monitoring &
Surveillance
VNF-Level
Activities
Capacity
Change Actions
Software
Install/Update
Other Action
Execution
Software
Disposal
Unplanned
Maintenance
Service
Production
PNF Execution
VNF Execution
X-as-a-Service
Execution
Care
Activities
User Request
Fulfillment
Problem
Management
Build
Activities
Requirements
Architecture
Design
Implementation
Integration
Testing
Lever -
Scalable Capacity
Lever – Advanced
Self-Service
Lever -
Automation
Lever – Efficiency
Analytics
Lever – Agile
Service Creation
Lever - VNF
Efficiency
Chapter 11 Automation
Chapter 12 Agile Service Creation
Chapter 13 Scalable Capacity
Chapter 14 VNF Efficiency
Chapter 15 Advanced Self-Service
Chapter 16 Efficiency Analytics

11. © 2017 Nokia11
Lever - Automation
Chapter 11 – Automation
Automation Model
Service Production Activities
Service-Level
Activities
VNF-Level
Activities
Successful Outcome
Manual
Rework
Manual
Action
Automated
Action
Automated
Decision & Action
Selection
Data production &
acquisition
Information analysis
Strategic decision &
action selection
Tactical action
coordination,
execution & oversight
PNF
Execution
VNF
Execution
X-as-a-Service
Execution
Customer Care
Activities
Automated Information Analysis
Efficiency improvement strategy –
 Reduce intensity of labor input for service
operations
 Improve right-first-time reliability to reduce
costs of poor quality
 Reduce non-productive resource consumption
via faster execution of operations

12. © 2017 Nokia12
Lever - Agile Service Creation
Build ‘N’
Software Release
Planning
VNF Software
Install/Update
Deployment Phase
Service
Production
Activities
PNF Execution
VNF Execution
X-as-a-Service
Execution
Software Disposal
Planning
VNF Software
Disposal
Disposal Phase
Build
Activities
Requirements
Architecture
Design
Implementation
Integration
Testing
Automate Strategic Decision &
Action Selection and Tactical
Action Coordination, Execution
and Oversight of…
DisposalTransition &
Checkout
Efficiency improvement strategies –
 Reduce intensity of labor input for service deployment, checkout & disposal
 Improve right-first-time reliability of service deployment, checkout &
disposal to reduce costs of poor quality
 Reduce time non-productive resources are held during deployment,
checkout & disposal
Chapter 12 – Agile Service Creation

13. © 2017 Nokia13
Lever - Scalable Capacity
Efficiency improvement strategy –
 Reduce capacity wastage
Chapter 13 – Scalable Capacity

14. © 2017 Nokia14
Lever - VNF Efficiency
Steady-State VNF Resource Efficiency
Dynamic VNF
Operational
Efficiency
Considers resources consumed
transitioning from one
configuration to another,
especially:
 Scope of VNF lifecycle automation
 Right-first-time quality
 Latency for VNF lifecycle
management actions
Efficiency improvement strategy –
 Selecting and deploying VNFs with efficient
steady-state operational characteristics
 Selecting and deploying VNFs with
favorable dynamic VNF operational
characteristics
Chapter 14 – VNF Efficiency

15. © 2017 Nokia15
Lever - Advanced Self-Service
ServiceProvider
Inputs
• Staff
• Technology
• Raw materials
• Facilities
• etc
Customers’ Inputs
• Own participation
• Participation by
fellow customers
Inputs
ServiceProductionProcess
Service provider
producingservice in
isolation from customer
(back office)
Service provider and
customer producingthe
service in interaction
(service encounter)
Customer producingthe
service in isolation from
the Service Provider
(self service)
Production
Service
Output
Outputs
Increase value-in-use
via co-production of
service experience to
accommodate
variations in user
preferences, etc.
Reduce service provider resource input
by shifting work from service provider
staff to customer via self-service
MaximizeValue-in-Use
Minimize Organization’s Resource Input
Level 1
Mostly
Staff effort
Level 2
Mostly
Customereffort
Level 3
Complete Self-
ServiceSupported
Level 4
Accommodate
Customer
Variability
Level 5
Increase
Customer
Value-in-Use
Level 0
Minimal
Self-Service
How aggressively (and by when) does organization have
to deploy advanced self-service to meet business goals?
Efficiency improvement strategies –
 Reduce intensity of organization’s labor input
for service encounter
 Increase customers’ value-in-use via co-
production of service experience
Chapter 15 – Advanced Self-Service

16. © 2017 Nokia16
Lever – Efficiency Analytics
Track production, costs, activity
and resource consumption
 Key Indicator Tracking
 Production Efficiency Analyses
 Cost Breakdown Analyses
 Capacity Efficiency Analyses
Make “what-if” cost predictions
to boost efficiency
 Sensitivity Analyses
 Resource Pricing Comparison
Analyses
 Resource Consumption Predictions
 Activity Intensity Predictions
 Policy Change Analysis
 Demand Forecasting
 Breakeven Analyses
Descriptive
Efficiency Analytics
Recommend efficiency
improvement actions
 Optimized Demand Forecasting
Rules
 Optimized Reserve Capacity Policy
 Optimized Capacity Management
Decisions
 Discover Useful Efficiency Insights
Prescriptive
Efficiency
AnalyticsAnalytics
Engine with
Machine
Learning
NFV, VNF,
Service &
OSS/BSS Data
Cost &
Efficiency
Models
Efficiency improvement strategy –
 Facilitating objective and quantitative measurement,
analysis, prediction and improvement of service
operations costs to incentivize and drive continuous
efficiency improvement
Chapter 16 – Efficiency Analytics

17. © 2017 Nokia17
Organization of the Document
Elevator Pitch
Abstract
Chapter 1 Overview of Efficiency of Cloud-Based Application Services
Part I - Understanding Application Service Efficiency:
Chapter 2 Service, Value and Business Results
Chapter 3 Understanding Efficiency
Part II - Activity-Based Cost Model of Service Production:
Chapter 4 Framing Application Activities
Chapter 5 Cost Modeling Cloud-Based Application Services
Part III - Analyzing Efficiency:
Chapter 6 Efficiency Improvement Strategies
Chapter 7 Lean Principles and Efficient Application Services
Chapter 8 Scope Efficiency and Cloud-Based Application Services
Chapter 9 Scale Efficiency and Cloud-Based Application Services
Chapter 10 Risk and Efficient Application Services
Part IV - Efficiency Improvement Levers:
Chapter 11 Automation
Chapter 12 Agile Service Creation
Chapter 13 Scalable Capacity
Chapter 14 VNF Efficiency
Chapter 15 Advanced Self-Service
Chapter 16 Efficiency Analytics
Part V - Key Efficiency Indicators:
Chapter 17 Cost of Creating Functionality
Chapter 18 Unit Cost of Service Production
Chapter 19 Cost of Capacity Wastage
Part VI - Connecting the Dots:
Chapter 20 Estimating Service Efficiency Improvement
Benefits
Chapter 21 Efficient Application Services and Private
Cloud
Chapter 22 Cloud and Operational Efficiency
Part VII - Backmatter
Annex A Economic Considerations for Service Efficiency
Annex B Understanding Indicators
Acknowledgements
Abbreviations and Acronyms
Works Cited.

18. © 2017 Nokia18
Call to Action
• Working draft can be downloaded from Researchgate.net:
This work deeply analyzes resource and cost efficiency of
producing services for end users from applications executing on
cloud computing platforms. Three key efficiency indicators are
proposed: Cost of Creating Functionality, Unit Cost of Service
Production and Cost of Capacity Wastage. A dynamic, time-
driven, activity-based cost model of service production is derived.
Six efficiency improvement levers are detailed: automation, agile
service creation, scalable capacity, virtual network function (VNF)
efficiency, advanced self-service, and efficiency analytics.
Efficiency improvement via lean principles, scope and scale
efficiency, and effective risk management are considered.
Chapter 1 “Overview of Efficiency of Cloud-Based Application
Services” summarizes the work.
• Return feedback on draft to Eric.Bauer@Nokia.com
• For further information contact Matthew.Dove@Nokia.com

20. © 2017 Nokia20
Operational Efficiency in the Input-Output Model
Cash
Value
CORE + VARIANCE
CAPACITY
Application Service
Operation
Resource Inputs
From Cloud Service
Provider(s) and Suppliers
Output
To End
Users
Virtual Compute, Storage
and Networking
Application Software
(usage)
Physical Systems
Functional-Component-
as-a-Service (usage)
Staff
Operations and Support
System (usage)
Management and
Orchestration (usage)
INPUT
PRODUCTIONDEMAND
WASTE
RESERVE CAPACITY
Application
Production
ChainSURPLUS
Operational
Efficiency
Valuable-Output
Resource-Input
≈
Chapter 22 – Cloud and Operational Efficiency

21. © 2017 Nokia21
Three Efficiency Tiers in Airline Business
Airline
Capacity Efficiency
seat occupancy
Production Efficiency
cost per seat-mile
Production Components
Component Efficiency
Fuel efficiency of a
particular aircraft
Resource InputsService Output
passengers
transported
Service Production
DEMAND CAPACITY
Fuel
Staff
Consumables
Chapter 3 – Understanding Efficiency

22. © 2017 Nokia22
Resource Efficiency and Cost Efficiency
Resource
Input:
Fuel
Output:
Miles
Driven
Economic
Input:
Money
Cost
Efficiency
Miles Driven
Cost of Fuel
=
Resource
Efficiency
Miles Driven
Fuel Input
=
Chapter 3 – Understanding Efficiency