I've been in a number of conversations over the past few weeks where I've been asked which business processes or apps belong in the cloud. There are obviously some technical considerations, but I'd like to focus on the strategic reasons for making the decision and how things have changed in the shift from traditional IT architectures to IT in the cloud.
Traditional IT department
In the past, the only way for a company to maintain control of their business process was to completely own the technology supporting the process. The rationale was that a company's most strategic, differentiating processes are unique and therefore have to built by the company either from scratch or by heavily customizing packaged applications. This also meant owning the entire technology stack supporting the process and the application. So, while the intent was to create differentiated processes that were agile and differentiating, the reality has become that the technology stack is an albatross around the IT team's neck that prevents them from moving as quickly and as efficiently as they would like to.
The result is that while IT organizations are keen to support the business, they are unable to go much beyond providing basic services. The solution to the problem of managing the entire stack was traditionally either hosted/managed server services or outsourcing, but each introduces its own problems.
In the case of outsourcing, the enterprise gains cost savings but relinquishes control of their business process and has to adhere to the provider's "best-practice" process. This clearly means that outsourcing can only be applied to commodity processes rather than any differentiating processes or processes where innovation is needed. The IT team's role shifts to primarily vendor management with little ability to innovate or drive the business.
Hosting gets a bit closer to solving the problem because it reduces some of the IT team's pain in terms of managing infrastructure. However, the IT team still needs to spend a lot of their time maintaining the application and the middleware stack, i.e., applying patches and bug fixes, implementing upgrades, maintaining integrations, etc. In addition, the team also needs to manage their relationship with the hosting vendor. So, again, the main impact is some cost savings but no real gains in terms of agility or ability to innovate or support the business.
IT department in the cloud
Cloud computing changes the decision process completely. No longer do companies face a choice between relinquishing all control of their business process for cost savings or dealing with the high costs and complexity of supporting an entire software stack.
Platforms like Force.com and Google App Engine give companies a way to control the parts of the stack that matter most, the application and business process layer and abstract away the management of the infrastructure. This means that the IT team can focus their energies on driving innovation and supporting the business.
A real-life example
In a past life, I was a partner at a major management consulting firm. Since our business was our people, we believed strongly that our most critical processes were those that were related to managing our people, e.g., recruiting, employee performance management, compensation, project management, project staffing, etc. The technology supporting many of these processes is available from outsourcers but we couldn't even consider those offerings because our processes were absolutely unique and core to our business. The result was the that we spent significant amounts of money maintaining a brittle IT infrastructure that was great at running the business in a static state, but was difficult to adapt as we changed our business model, made acquisitions or entered new markets.
Fast forward to today at Appirio. We run our entire business in the cloud. A core part of our business is delivering professional services to our 150+ enterprise customers (and products to over 2500 companies). We manage all aspects of our professional services business in a custom application running on Salesforce's Force.com platform. The application is completely customized to our unique processes but runs in the cloud. Therefore, we can quickly adapt the application as new needs arise and not worry about maintaining servers or managing infrastructure. With no intervention from us on the infrastructure side, the application has supported our four-fold growth over the past year. In addition, as we make changes to our internal organization structure or introduce new products or service offerings, we can make changes almost instantly. Our IT costs less than a third of industry benchmarks AND we can run a better, more agile business.
That's why we believe that over time, companies should move not only their non-core processes but also their most strategic processes to the cloud!