Trusting Cloud Lords

Everything is moving to the cloud if not today it definitely will in the near future, so say almost all the learned consultants and everyone who has an opinion on IT. Every large IT vendor has invested in creating their own cloud offering and acquired many start-ups who loved the dotcom like phenomenal valuations with their offerings. Private Equity, Venture funds and Angel investors have bet big on this new found paradigm that once again threatens to change the world (the last time was with dotcoms a long time back).

Different models have emerged with software, platform, infrastructure, storage, what have you, being available as a service with enterprises being pushed towards perceived agility and budget shifts from capital investments to operating expenses; pay as you go, variable cost, scalability, numerous benefits being touted with all kinds of engagements and service models. They have indeed been beneficial in many cases, disruptive in some cases with licensed software model being challenged.

Retaliatory steps from big packaged software vendors did not deter the cloud providers which continued to get funding and mushroomed all over. Unable to beat them at the game, all of them have now joined the bandwagon with their own offerings in an attempt to retain the customer. Their agility has remained a challenge competing with the nimbler start-ups. They do have the big budgets and deep pockets to squeeze out their smaller competitors and if that does not work, acquire them.

When I recently came across news that one of the prominent niche cloud players was going bust, it had my undivided attention. The provider had many partners big and small selling their solution and many major enterprises using it. The service offering was good, the price attractive and their growth meteoric. They had good funding available through the rounds. And then suddenly they announced that they had run out of cash will be winding up in two weeks’ time asking customers to find alternatives.

Not too long ago another cloud platform provider had shut shop with 30 day notice to their customers. Their largest customer had pulled the plug; that implied more than 50% of their revenue disappeared. They were smaller and not highly visible, and thus their demise did not create many flutters. The business impact to many of their customers was severe as they were left scurrying to protect their business and revenue; in a few cases survival. There have been other insignificant ones who did not really take off, becoming an epitaph in history books.

Can and should enterprises and business bet on offerings from cloud providers ? Is there a way to safeguard the adverse impact if the company went kaput or even got acquired ? Should companies put their operations or for that matter IT and information assets at risk with cloud lords ? Legal contracts and SLAs rarely offer a solution despite the lawyers debating every clause and punctuation. The impact whenever it happens even with an outage or a security compromise is real and threatens reputation beyond the revenue or profitability.

I do not believe that anyone can ignore the clouds and continue to work with the conventional models of yesterday while preparing for tomorrow. Reality is that clouds will continue to be disruptive, their value propositions worth evaluating and experimenting with; the pragmatism required is to ensure that the advantage it creates to either business or IT is taken into consideration along with the risks and potential impact should there be a need to migrate across public clouds or transition back to private cloud.

It is evident that there is no ubiquitous solution that can be applied to all cases. The CIO with end accountability along with business stakeholders should highlight the benefits along with the risks of the step towards clouds. The mitigation plan should be tested like all Business Continuity Plans (BCP) and Disaster Recovery (DR) are executed periodically. This is a necessary inclusion now for every cloud service that an enterprise subscribes to. Costs related to such a plan should be factored into the initial budgets when calculating the benefit of the cloud solution.

Go for it, you have nothing to lose and everything to lose depending on how you approach it; if you don’t, the business will always find a way to get it leaving you to manage the mess when things go wrong.

Process or Relationships ?

Within a span of a week, twice I was asked the same question in different forums by different people. I don’t know if that was pure coincidence or what is due to the fact that both belonged to different parts of the world and thus had different perspectives. In both cases they were curious to get an alternative view of how CIOs succeed in culturally diverse environments with dissimilar work ethics and realities. What if anything separates the modus operandi and style of the CIOs in the East and the West ?

I am not sure if this is a fair comparison or should we be listing the divergence in the approaches; both adapt well to their realities and both have had share of success and challenges. Neither can be said to be better than the other as they address similar opportunities a bit differently. One way of working cannot be transplanted as-is into the other world and expect success; even if the second is a part of the same organization in another geography. Thus global best practices remain good to read, not always workable on the ground.

What separates the CIOs between the West (read US, Canada, and EU) and East (mostly Asia, though the comparison set is largely India). You will hear this from almost every vendor doing business in East, and so will you get a similar message from the CIOs of Indian enterprises or CIOs of the Indian entities of global companies with business interests in India. Despite the recognition I have not come across a formal analysis of such differences in the way of working across markets and geographies.

Everyone agrees that India is a value conscious market; products and services vend at lower margins and discounting is normal. The outsourcing boom in India driven by wage arbitration did not leave too much behind for the Indian companies who had to pay higher wages to get quality skills. Due to this the services play for the Indian market was taken up by mid-sized companies who out-priced their bigger brothers who were happy to take the higher margin business from the West until recession dried up their pipeline.

Software vendors realized that to gain market entry and sustain business, the discount levels had to be different from their home markets. For hardware manufacturers the margins stood squeezed to low single digits, enough to cover marketing and administrative costs, not to make too much money. System integrators and consultants fared a bit better though not by too much; only the subject matter experts and high technology professionals could bill at global rates, in many cases reduced to advisory roles.

CIOs in the West are process driven, like standardization, drive scale though tools and technologies and create predictable outcomes with great contracts and Service Level Agreements between the parties. This is fairly well accepted as a way of doing business and everyone internally and externally aligns to the order and discipline. There is limited flexibility and exceptions are indeed rare. Thus everyone knows where they stand and what the terms of engagement and governance are likely to be.

The East shuns order that takes away individuality; everyone believes they are uniquely different. Standard solutions are frowned upon as they take away the flexibility that casts everyone into the same mold. While contracts are drawn up and SLA signed, they are rarely followed if at all irrespective of the size of deal or financial implications. If there is a change in reality, the first thing customer wants is a change in terms of engagement. If there is an adverse event, SLA is damned, immediate service is expected.

People do business with people and that is reality. Standards can change because the relationship manager changed jobs; who you know overrules contracts or SLA. A call to the right person will get you right resources or help resolve a problem. Relationships score over process every time. Value is paramount and cost is always expected to go south. It is a delicate balance which everyone learns to sustain their business interests. So SLA is measured, penalties rarely enforced; contracts are fought over until signing, rarely referred to afterwards.

I believe that for a global business to sustain, these differences are acknowledged and adapted to. There is no other recourse. For the leader, the CIO, s/he continues to wonder about the debate over the different realities. I am sure there are nuances to each country, market and culture; a global entity takes all in their stride. Employees who work across borders get used to this. For management consultants and their elk, they want to create untenable uniform models as global best practice. All the best to them !

Nonlinear impact of IT

In recent times we have been talking about business projects and not IT projects that are evaluated on business criteria and require business owners to sign-off the impact it has. The funding for such projects is done by respective business owners and part of their P&L and budget. This has also led to higher ownership and thereby improved success. The enablement and partnering by stakeholders has changed the way IT has traditionally acted in the role of creator of solutions now focusing more on business outcomes.

Many CIOs that I talk to now are creating significant impact with business partnership extending to the customers of their internal customers. The outward focus has created many new opportunities for making a difference to the company. The resulting rise in credibility puts the business savvy CIO in a position of advantage which they are willingly capitalizing. On the flip size it is creating pressure for the IT teams to manage expectations and the pipeline of new projects; an interesting problem to solve.

Not too long ago I was at a conference where the speaker raised the question on how does IT impact the business – process, efficiency and effectiveness. He spoke about looking beyond the obvious KPIs and metrics used by business and IT teams, challenging CIOs to go higher to view the impact technology is creating. A supply chain or customer engagement initiative has larger impact than the immediate efficiency or new capability it creates. The new capability can be a game changer for enterprises competing in a low margin hyper-competitive world.

A company implemented a supply chain project to bring visibility and transparency downstream and upstream. Connecting vendors and suppliers linked to a demand forecast or sell-through resulted in improving the order fulfillment resulting in increased revenue as well as bringing down the holding cost of raw material and inventory. This led to improved customer satisfaction which in turn got them incremental business. Thus the impact was not just visibility; it also created new opportunities with existing customers.

The initial project when it was drawn up had modest expectations of visibility impacting supply and consistency of execution. The result it delivered was however beyond the defined outcomes. The limits were based on known direct impact not factoring in the derived benefits which it actually delivered. It took some time for the stakeholders to connect back these to the small project taken up by IT for the supply chain team. The acknowledgement of the nonlinear impact took a while and raised the team morale.

This case study had every CIO thinking about the nonlinear impact their initiatives had created which they had failed to capture in the post implementation reviews, management debriefs or meetings. Almost everyone had a set of projects that had delivered the ripple effect of positivity which they shared with each other. The speaker urged them to change their thinking beyond the immediately visible to a holistic view of how every project can potentially provide a higher ground for discussion. He also cautioned that It may not be obvious to begin with.

We are all conditioned to believe that large high value multi-functional long duration projects are the ones that create new capability for our companies. I am not discounting this belief; smaller projects too can have a cascading effect that creates a competitive differentiator at least in the short-term. They are rarely captured as baseline benchmarks in the initial stages. The post implementation review (PIR) rigor which is quite weak culturally (except when things go wrong) needs to change to bring forth the benefits.

CIOs move their teams from project to project with a sense of urgency to fulfill the pipeline of new initiatives and keep the business happy. It is imperative for the CIO to enforce PIR for all projects not limited to the traditional post go-live capture of learning, but also review the same again in three months, six months and a year after the solution has been institutionalized. PIR is not about what went wrong and what worked or for that matter whether the stated business benefit was delivered. It can be about the nonlinear impact.

Go ahead and make a beginning and you will be surprised !

Awry Outsourcing Anguish

Recently I met a friend whose company had signed a strategic outsourcing deal a few years back with much fanfare and was talked about as one of the first in his industry. His company made news in restricted industry circles and the vendor gained good leverage out of the deal. The long-term deal was expected to create efficiency which were acknowledged by the Management and the Board. The teams were excited with the prospects of the new engagement and the benefits outlined.

From initial discussion to closure of the deal, it had taken a lot of groundwork between both the teams who toiled for over a year. Setting the baseline was the most rigorous task which required everyone to agree to the “as-is” scenario; number of assets, age and residual life, upgrade and replacement norms, scale-up of the business operations, revenue growth targets, additions to workforce, industry outlook; everything was required to be put in writing to ensure that the contract survives the signatories.

I asked him on how it was going; after going down the journey for close to three years, had they started seeing the benefit of their decision ? How was the service delivery and how had the users taken the change ? What would be his advice to others who may want to go down the same path ?  After all not many had signed long-term deals in recent times. He looked at me hard as if trying to understand why I was asking him all that. Seeing no ulterior motive in my query, he responded:

We have decided to terminate the deal; it is not working out. Our problems started during service transition. The team misinterpreted almost every clause and intent; we had to involve the pre-sales team and escalate across layers to get to the shared understanding that went into the contracting. The people on the ground had skills deficit and were unable to come up to the same level of service pre outsourcing. In every review meeting they promised improvements and then nothing changed.

The commercials were based on certain assumptions of growth and efficiency. They were expected to make upfront investments on tools and technologies which took longer than committed to materialize. Business had also started slowing down and the cost was beginning to hurt. The vendor was unwilling to accept this and review terms of engagement even though one of the primary benchmarks, cost as percentage of revenue, was broken and going north instead of the promised south.

After much discussion, escalation and negotiation, small tweaks were done to the model which survived a stormy year. When business growth eluded us as per original plan and required deferral of certain initiatives and hardware refresh, the dialogue was not very encouraging. All the spreadsheets that made lot of sense prior to commencement now appeared to be work of fiction. The contract did not allow significant change downward while it captured the upside. Short of suing each other the only recourse was termination.

In recent times there have been many outsourcing contracts that have run into rough weather; what seemed like a great idea in the late 90s and turn of the century have lost charm. Back then everyone was racing to outsource; now it seems that everyone is in a race to find a way out. Most contracts that are coming up for renewal are finding favor with neither incumbent vendor nor new partners. Have the outsourcing benefits suddenly disappeared ? What has changed that suddenly makes enterprises shy away ?

It is evident that for many who outsourced with large long-term deals with big service providers have not gained the promised benefits. Where did it fall short ? Sales organizations did a great job of painting a rosy picture while the delivery and execution team ran out of color red. The gap between intent and execution and the inability to adapt to variability of business has resulted in both sides feeling shortchanged.  The advent of newer services and scenarios like RIMS and BYOD has anyway changed the game.

One of the models that I have found survive over others is a deal where service parameters and expectations are reset every year. It requires IT, business and the vendor to work on the same side of the table. I have observed many successful deals that survived multiple challenges; they had clearly defined ownership. When you outsource, you still are accountable and responsible; it is not abdication of responsibility. New models of outcome based engagements are appearing on the horizon, their efficacy is yet to be experienced.