Keep rogue Cloud software from making IT irrelevant

Many Cloud surveys don't count the business units that are buying cloud services behind IT's back

Surveys of senior IT managers consistently show that Cloud computing and software as a service (SaaS) are being tested or used for non-critical applications at fewer than half of US corporations.

Those surveys are grossly inaccurate, according to many of the same analysts who conducted them, because they don't count the business units that are buying cloud services behind IT's back.

In 2010 only 13 percent of IT decision makers said their companies were already using external infrastructure-as-a-service (IAAS) clouds and planned to expand that use.

"The actual number was double that, and that was only talking about IAAS," according to Galen Schreck, vice president and principal analyst at Forrester Research.

Even Schreck's anecdotal number underestimated the gap between how many cloud apps IT thinks an organization is using and the real number, according to Frank Gillett, VP and principal analyst at Forrester.

"Informal buyers" from outside IT buy IAAS twice as often as "formal" buyers inside IT, and the informals make five times as many software buying decisions as the IT people who are supposed to be in charge, according to Forrester.

"It often comes as a big shock to the infrastructure and operations people [within IT] to find they grossly underestimated the cloud services in use at their organizations," Schreck says. "They realize they have no idea what the application owners [in business units] and developers are up to."

Informal buyers even have their own tech budgets. According to a Q4 2010 Forrester survey 69 percent of 3,000 business managers reserved part of their operations budgets to buy tech services directly, rather than through IT.

A June report from integrator and consultancy Avanade found that 61 percent of business and IT executives said they buy cloud services on the sly because it's simply easier. Half said going through IT takes too long and a quarter said their company's policies forbid them from using the services they want.

That's not necessarily a disaster, but it can set both IT and its parent company up for one, says Susan Cramm, founder of executive career-development and strategy consultancy Valudance. Cramm is also a former CIO of Taco Bell and CFO of a smaller PepsiCo restaurant chain.

Experts say letting managers buy any service they want, when they want leaves the company bleeding money from multiple subscriptions to Salesforce and suffering "cloud sprawl"- too many separate logins, too little integration between instances of the same service and rates that are too high because subscriptions are bought one at a time rather than in bulk.

What can IT do to avert such problems? "Get out in front of the whole thing," Gillett says.

1. Create a way for business units to get what they want.

"Agility is really a big deal on the business side in ways that it not always is in IT," Cramm says. "So if you can show that you're moving more quickly this year than last, and help users change more quickly, that will play a role in reducing the number of times people go outside."

Among the value-adds that IT can bring is security. Business units pay little attention to the kinds of data they're using on what platforms or what risk that creates, Schreck says. IT managers who can demonstrate how they can increase security without making the whole process more kludgy will get support from business managers.

Create definitions of the types of data the company uses and which can be used or shared in environments with different levels of security, adds Schreck. That will go a long way toward showing business managers that IT knows how to protect them and help expand their abilities at the same time. In short, create security and usage policies that are easy to follow and business units will go along, he says.

Providing checklists or buying-decision matrices that help business managers look at tech companies and figure which are safe to hire and which require more investigation is also a winning strategy, Cramm says.

So is letting some groups rent what they need with minimal interference from IT, she adds, such as developers, marketing teams and others that might have an intense but short-lived need for more capacity to meet project deadlines or test new products.

2. Create a (fast) procurement process.

Informal buyers are taking over big parts of the IT buying process not because they want to, but because IT isn't giving them what they feel they need as quickly as they think they need it.

"Users are saying, 'If we think you don't offer good collaboration services, we can go outside for that. If you don't have easy storage options, we can go to Dropbox. If your instant messaging is crummy, we'll use Skype," Schreck says. "IT doesn't really have the ability to say 'No' to a lot of things anymore. Users can just go around them."

The trick for IT is to move quickly enough to make end users feel they are making some progress, according to Sean Hackett, analyst at The 451 Group. Modify or slim down traditional procurement processes so they can support quick decisions on cloud or SAAS. That'll keep IT in the game without giving up too much of its own prerogatives or requirements, Hackett says.

3. Cherry pick your part of the job.

Marketing isn't just for marketing. If IT's only role in the cloud is to take away the fun, business units will avoid IT even if it provides a real benefit, Cramm says.

The beauty of cloud is that it shifts much of the dry, technical maintenance work to vendors while leaving policy and operational responsibilities with the customer- the IT department. So don't let cloud providers or users shove IT into the role of enforcing negative policy requirements like disk or usage quotas and maintaining internal hardware while the provider takes all the credit for the app they deliver.

Instead, have IT automate dynamic provisioning, create an app store interface through which business managers can distribute the apps they own, and provide backup, security and other insurance policies to save the day when there's a big problem. That's an IT department that is competing for the business of its end users, Schreck says.

4. Make it simple- and show the value.

Providing an app store-like interface offers a couple of benefits to IT. For one, it gives end users IT services that they can see and appreciate, and it's easy for them to use, which is key to IT's acceptance as a bona fide provider of cloud services. In addition, a properly constructed app store enables IT to itemize bills for chargeback or showback reports that track a business unit's activity and demonstrates IT's value.

"If you're trying to get to a reasonable position with cloud there is a whole implementation layer that includes self service portals, tracking resource consumption and chargeback based on consumption," says James Staten, principal analyst at Forrester Research. "That is the only way to do it without making cost monitoring and cost control much more difficult."

5. Don't overvalue yourself.

A potential drawback to chargeback is that building something good and then sending a big bill can seem to business managers more like extortion than cost justification, Schreck says.

IT executives whose focus is internal, rather than market-focused, may value and charge for their services based on fees that have nothing to do with what cloud providers are charging in the real world, adds Schreck. That just reinforces the idea that IT is out of touch, too expensive and too slow to deliver the specific functions business managers want, at a price they want to pay.

"A lot of clients I've seen charge back rates for storage, for example, that just don't mesh with what you see outside," Schreck says. "If I'm a developer trying to set up a pilot project and I put in a request and get a chargeback price quote that's completely out of whack, it's going to be very tempting to go outside."

Oddly, showback is more common in cloud projects than with more traditional systems, but most IT departments do not make a concerted effort to make their cost/benefit clear.

While 64 percent of IT executives are tracking utilization and cost levels for cloud and virtual infrastructures, 90 percent don't charge business units based on their consumption -a key element in the economics of cloud, according to a March report from the Worldwide Executive Council and service provider Apptio.

Half of those who track cloud costs report the cost as a lump sum to upper management, while one in five doesn't report them at all, the report showed.

Read more about cloud computing in CIO's Cloud Computing Drilldown.

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Is it reasonable to expect an IT Department to aim, or be expected, to offer business units the span of functionality available on the internet? Any IT Department, no how smart and well resourced, would be challenged to do so, and probably fail in the attempt and also fail their business clients.

Your quote from Forrester says business unit managers make five times as many software buying decisions as the IT people who are supposed to be in charge. I'm mindful of an occasion where the CIO of a top 4 bank began telling business unit heads what they could and couldn't have. The CEO of the bank called the CIO in and said "I'd like to get one thing clear here: you're a service provider, right? Provide a service".

The right role for a CIO is, in my view, to set out a strategy that supports the corporate strategy, and supports that with solutions (either in-house or external) in a way that meets business needs.

Failure to do so will see the business join the ranks of businesses that are failing because their technology is letting them down. This is not just confined to banks and retailers ... take a look at RIM (makers of Blackberry): their share price is down from $150 in the first half of 2008 to less than $27, and their market share has crashed. Take a look at MSIE's market share.

Business has to be agile, and that agility can stretch the resources and capabilities of the best IT departments, which is why some of the best IT companies buy other companies rather than try to build a competing product.

That decision is beyond the capability of your typical CIO ... but the option that is available is to buy a service or product rather than consume time, money and people - and put the business at risk - in the attempt to keep everything in house.



Thought I might add to my previous post with an explanation of how our SAAS business helps businesses and CIOs (I don't name our business, because this blog post is not an advertisement).

We have 3 key USPs:
> All of our clients didn't believe that we could deliver what we said we could. We had to bear the criticisms of COOs and CIOs who said that their business clients could not, or would not, use the internet for the mission-critical role we support. In all cases they based their opinion on the failure of their own in-house system to deliver the outcomes we were promising. Within months the business unit sponsor for our product was a hero - and that's one of the outcomes we always look forward to - because we have 100% takeup of the internet by their users.
> We deliver a system within days of contract signature, whereas an inhouse solution typically takes years to build.
> We deliver productivity gains of 5-10 times, meaning that our solution is self funding within the first year.

So how does this support an argument for SaaS as an alternative for CIOs?
> It offers a low risk experiment of a business model, business process and technology. We carry all of the build and operating cost risks - the client just pays for use.
> It migrates the user base and the corporate business model to a contemporary solution.
> Unfortunately for us, we also find the IT Department then incorporates the business model and solution design into a business case that sees them building an in-house version of our product.

In these cases, the business sponsors showed leadership and, to their credit, the CIOs saw the point and built, or rebuilt, their own solutions. Whilst we're disappointed to lose the business to inhouse solutions, we get some pleasure from the role we play in helping clients transition quickly to a better service model, and we get a kick out of our referenceability. Then we get back to work on our continual innovation and product improvement program.

I'm mindful of a quote from Jeff Bezos (I think it was) when asked "Are your clients loyal to your service?" He replied, "Absolutely, right up to the moment that someone else offers them a better one."

Now that has to be good for everyone doesn't it?

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