Equating IT Modernization to Business Innovation

A McKinsey report this week titled, “Cloud Adoption to Accelerate IT Modernization”, tackles a topic I have been keen to explore with clients in the last couple of years: What is the value of cloud computing to business?  In my most recent bloc, How to Talk Cloud to Business leaders, I noted that different parts of cloud offer different value to different stakeholders.  In that blog I noted the following:

• SaaS supports standardized business process.  There is no source of differentiation in these business processes.  The whole point of SaaS is standardization.
• PaaS is the app dev platform that allows for custom business process support.  Currently the market associates this with either unique one-off business models or narrowly defined personal productivity offerings.  In the future PaaS will help users build and deploy systems of innovation and systems of differentiation that extends SaaS apps.
• IaaS is the quintessential cloud offering.  This is what cloud was originally about: elastic storage and compute.  This IaaS enables SaaS and PaaS to work faster, cheaper, and more broadly.

The McKinsey report nicely relates to this model in their note.  KcKinsey’s suggests that “list and shift” of workloads, what is mostly equated to IaaS, is not going to yield the business value everyone is expecting and looking for.  In fact, as I note, IaaS is really focused on compute and storage and so focused on cost optimization and what many CIO’s are focused on.  It is the other layers, some parts of PaaS, much of SaaS, and the missing-in-action, DaaS, that provides the real business innovation and differentiation that CEO’s and business leaders are more interested in.

The interesting I spotted in the McKinsey report is the following text:

“The full value of cloud comes from approaching these options not as one-off tactical decisions but as part of a holistic strategy to pursue digital transformation. Such a strategy is enabled by the standardization and automation of the IT environment through an open API model, adopting a modern security posture, working in an automated agile operating model, and leveraging new capabilities to drive innovative business solutions.”

I have to point out that the most valuable part captured in this otherwise point is captured in the last section.  Standardization and automation alone does not yield innovation and differentiation; it may yield free funds, spun out by productivity increase, to then invest in new areas.  The dialog about API models is partly related to cost optimization through standardization, but it can also help support innovation.  The reality however is the newly innovative business processes and decisions that create business innovation and differentiation, and will be more scalable if build using an API model (among other things glossed over in the McKinsey paragraph.

The article itself is quite good but it tends to focus on what most folks think of with cloud – that is – how IT changes what it does.  Even when the article get’s to the important section, “How to Approach the Cloud Transformation”, its first section – the most important next step  is to equate cloud to a sourcing strategy.   I would tend to first focus on what explains a firms’ differentiation and innovation and see how cloud actually serves that capability.  It maybe that cloud computing does NOT do this for quite some time.  As such, a cloud strategy would remain an IT concern focused on cost.  Only when and if business processes, decisions and insight offer differentiation and/or innovation for the business in the cloud will the CEO really care.

This blog and the McKinsey article just demonstrate how large, broad and complex the topic of cloud remains for many.  It is all too easy to talk about cloud in IT terms and too rare to talk about in business terms.  As if to prove my point, one of the last points in the report is this:

“Adopting new KPIs. Measure and reward your technology team for standardization and automation rather than, say, for availability.”

This is fine, when measuring IT on what it does.  But where was the dialog about how new digital KPI’s measure the new transformative business process and decision change?  That is far more important than measuring IT’s performance for it achieving its goals.  Interestingly a linked article from an earlier McKinsey publication is more promising: Reimagining software services for the cloud and the digital world.  This article, from February, does a better job of linking cloud to new business models and outcomes.  You ought to read both articles to get the innovation, differentiation, and cost optimization perspective.