Cloud transformation - accelerating the journey
Network services, applications and data analytics are all part of the digital transformation redefining businesses globally. This digitalization is prompting companies to shift the role of IT from a cost and control function to a strategic enabler and an internal service and innovation provider. Using the cloud as part of this process improves business agility and positions companies for a successful digital transformation.
The cloud transformation journey is challenging. For it to be successful, careful planning and execution, along with significant technical, organizational and operational changes, are all required. Additional factors include tight budgets, the need to scale solutions exponentially, and increasing complexity in terms of security and regulations.
Organizations with investments in business-critical applications, data centers, platforms or networks may be resistant to cloud transformation. After all, staying with these legacy investments can reduce transformation costs, but it can also compromise agility, as well as scale and distribution, when the desired outcome is delivery of end-to-end digital services.
Given the complexity of the current business landscape, which includes both legacy and modern infrastructure, cloud architectures, evolving best practices and business models, together with increasing market demands, companies should adopt a well-planned, structured approach to cloud transformation. The key aspects for success are outlined in this paper.
Understanding the transformation journey
Creating change within organizations takes time, planning, hard work and patience. Cloud transformation is no different.
In a traditional IT environment, where staff operate according to a predefined plan, Ericsson estimates that maintaining established technology capability typically accounts for 70 percent of an organization's operating budget. Today, business management teams are applying pressure to technology providers to reduce costs and achieve more. Service management is restrictive, and ever increasing security risks make change harder. Time to market is slow, and pressure on profitability of legacy services compounds the need for cost reduction. The ratio of service scaling does not align with profit scaling, while operational costs keep pace.
Cloud business models are service-driven, and aim at creating higher-value, differentiated digital services quickly. In Ericsson's view, infrastructure here is seen as a programmable, automated asset. Business value is increasingly derived from software and data. Infrastructure is a service rather than an expensive constraint. Time to market is rapid, with shorter development cycles in place to respond to customer needs quickly and to gauge customer satisfaction rapidly. Successful services can quickly scale without being held back by legacy constraints.
Gartner introduced the concept of different organizational modes in "Best Practices for Planning a Cloud Infrastructure-as-a-Service Strategy — Bimodal IT, Not Hybrid Infrastructure," Gartner, December 2015.
In addition, Gartner's 2015 CIO survey found that: "In EMEA, 39 percent of the surveyed CIOs are on the bimodal journey, and 27 percent are planning to undertake it in the next three years." (Gartner Press Release, Gartner CIO Survey Shows Digital Business Means Platform Business, November 9, 2015, http://www.gartner.com/newsroom/id/3164421)
The challenge within
Cloud transformation often starts with a virtualization technology focus within an existing Mode 1 organizational and operating structure. The risk with this approach is that without organizational and operational evolution, only limited cloud benefits will be achieved.
Ericsson's view on mode evolution
Traditional Mode 1 companies are in a double bind: not only must they transform business and IT processes, they must also do so under intense competitive pressure – because their markets are being eroded by progressive Mode 2 companies. Terms such as "shadow IT" have emerged, reflecting abandonment of internal technology capabilities due to growing business pressure to enter new markets quickly.
It is hard to imagine that any Mode 1 company would not wish to operate in a Mode 2 way, and yet few have been successful in implementing bimodal capabilities. This failure is in part due to the challenge of evolving existing internal capabilities, and to a lack of clarity and visibility on what to do, when to do it and how to do it. The Mode 2 model needs top-down support and a strong mandate. And both Mode 1 and Mode 2 models are dependent on the necessary competencies and skill sets being available.
Depending on the business sector, it may be more effective for established brands to create a Mode 2 capability inside their well-established Mode 1 shell. This is certainly more aggressive, but carries less risk because the newly-created shadow organization and operations can be designed on a "green field" basis without any legacy constraints. The highest-risk approach is to attempt evolution of existing organizations and operations and use them as incubators for new services delivered in an agile way.
In order to fully optimize the cloud business model, the ability of an organization to manage itself and third parties should evolve through the following three stages of maturity.
Stage 1: Service management, enterprise architecture, and technology and operations managed in-house
Stage 2: Service management, enterprise architecture, technology and some operations managed in-house, but with some platforms outsourced to a third party under a managed services contract
Stage 3: Service Integration and Management (SIAM) capable of managing end-to-end services that are delivered by third parties or internal service providers. Enterprise architecture evolved to support public, private and hybrid operating models. Technology and operations are servicerather than silo focused.
The evolution must address many dimensions of the target operating model, including:
- service strategy (portfolio, brokerage)
- service operations (organization, people and process)
- service performance (service levels, KPIs and cost)
- partnerships and alliances
Stage 3 organizations drive the competitive service agenda and then benchmark the cost of the services. This, in turn, puts pressure on the internal technology provider to deliver services in a competitive way. Internal competitive positioning is not just about the price; it also encompasses key cloud service expectations such as agility, flexibility and service assurance that are aligned to the service requirements.
The transformation approach
A disruptive cloud journey
The private cloud journey typically starts with a technology focus, perhaps driven by virtualization. Experience has shown that technology is relatively easy to implement compared with the changes often needed to an organization's people and processes. While technology innovation may deliver some virtualization benefits, organizational and operational transformation are key to achieving cloud benefits. The key factors for success follow.
Target Iterative improvement cycles
The goal of the transformation journey should be to enable the organization to manage a continuously improving operational and economic environment for the business. The cycle must be business-focused and data-driven. Since technology and businesses are always evolving, the journey is a continuous, iterative process. Through this process, it is possible for an organization to use a public, private or hybrid cloud approach, or even its own infrastructure as appropriate. It will be possible to determine whether legacy investments should be combined with newer infrastructure or retired. Such an approach can help ensure that a business's infrastructure and operations never become out of step with its current and future requirements.