2013 will be one of the most pivotal years for cloud computing because trust in these technologies is on the line.
Expectations are high regarding these technologies’ ability to deliver business value while reducing operating costs. Enterprises’ experiences have at times met these high expectations, yet too often are getting mixed results. Managing cloud expectations at the C-level is quickly emerging as one of the most valuable skills in 2013. The best CIOs at this are business strategists who regularly review with their line-of-business counterparts what is and isn’t working. These CIOs who are excelling as strategists also are creating and continually evaluating their cloud computing plans for 2013. They are focusing on plans that capitalize the best of what cloud computing has to offer, while minimizing risks.
CIOs excelling as strategists are also using cloud computing planning to punch through the hype and make cloud technologies real from a customer, supplier and internal efficiency standpoint. Lessons learned from these cloud computing planning efforts in enterprises are provided below:
- Cloud computing needs to mature more to take on all enterprise applications, so plan for a hybrid IT architecture that provides both agility and security. This is a common concern among CIOs in the manufacturing and financial services industries especially. As much as the speed of deployment, customization and subscription-based models attract enterprises to the cloud, the difficult problems of security, legacy system integration, and licensing slow its adoption. There is not enough trust in the cloud yet to move the entire IT infrastructure there in the majority of manufacturing companies I’ve spoken with.
- Reorganizing IT to deliver greater business agility and support of key business initiatives will be a high priority in 2013. The gauntlet has been thrown at the feet of many CIOs this year: become more strategic and help the business grow now. Cloud is part of this, yet not its primary catalyst, the need to increase sales is. IT organizations will increasingly reflect a more service-driven, not technology-based approach to delivering information and intelligence to the enterprise as a result.
- Recruiting, training and retaining cloud architects, developers, engineers, support and service professionals will be a challenge even for the largest enterprises. There isn’t enough talent to go around for all the projects going on and planned right now. State Farm Insurance has 1,000 software engineers working on their mobility applications for claims processing and quoting for example. And they are hiring more. Certifications in cloud technologies are going to be worth at least a 30 to 50% increase in salary in specific positions. This is very good news for engineers who want to differentiate themselves and get ahead in their careers, both financially and from a management standpoint.
- Measuring the contributions of operating expense (OPEX) reductions is going to become commonplace in 2013. From the cloud computing plans I’ve seen, OPEX is being tracked with greater accuracy than in any other year and will be a strong focus in the future. The capital expense (CAPEX) savings are clear, yet OPEX savings in many cases aren’t. Cloud computing’s greatest wins in the enterprise continue to be in non-mission critical areas of the business. This is changing as cloud-based ERP systems gain adoption within businesses who are constrained by monolithic ERP systems from decades ago. Plex Systems is a leader in this area and one to watch if you are interested in this area of enterprise software. SaaS is dominating in the area of lower application costs and high user counts, which is the Public Computing Sweet Spot in the following graphic:
Source: 2013 Cloud Computing Planning Guide: Rising Expectations Published: 1 November 2012 Analysts: Drue Reeves, Kyle Hilgendorf
- Start building a SaaS application review framework including Service Level Agreement (SLA) benchmarks to drive greater transparency by vendors. Gartner forecasts that the SaaS-based cloud market will grow from $12.1B in 2013 to$21.3B in 2015, with the primary growth factors being ease of customization and speed of deployment. CIOs and their staffs have SaaS frameworks already in place, often with specific levels of performance defined including security and multitenancy audits. SLAs are going to be a challenge however as many vendors are inflexible and will not negotiate them. At a minimum make sure cloud service providers and cloud management platforms (CMP) have certifications for ISO 27001 and Statements on Standards for Attestation Engagements (SSAE) No. 16, as this shows the provider is making investments in availability, security and performance levels.
- Create a Cloud Decision Framework to keep technology evaluations and investments aligned with business strategies. Business and application assessments and the vendor selection process need to take into account application requirements, role of external cloud resources, and how the RFI will be structured. These process areas will vary by type of company – yet concentrating in application requirements goes a long way to reducing confusion and forcing trade-offs in the middle of a review cycle. The following is an example of a Cloud Decision Framework:
Source: 2013 Cloud Computing Planning Guide: Rising Expectations Published: 1 November 2012 Analysts: Drue Reeves, Kyle Hilgendorf
- Mitigating risk and liability through intensive due diligence needs to become any cloud-based companies’ core strength. Regardless of how the HP-Autonomy litigation is resolved it is a powerful cautionary tale of the need for due diligence. And let’s face it: there are way too many SaaS companies chasing too few dollars in the niche areas of enterprise software today. A shakeout is on the way, the market just can’t sustain so many vendors. To reduce risk and liability, ask to see the financial statements (especially if the vendor is private), get references and visit them, meet with engineering to determine how real the product roadmap is, and require an SLA. Anyone selling software on SaaS will also have revenue recognition issues too, be sure to thoroughly understand how they are accounting for sales.
- Design in security management at the cloud platform level, including auditing and access control by role in the organization. One manufacturing company I’ve been working with has defined security at this level and has been able to quickly evaluate SaaS-based manufacturing, pricing and services systems by their security integration compatibility. This has saved thousands of dollars in security-based customizations to meet the manufactures’ corporate standards.
Bottom line: 2013 is the make-or-break year for cloud in the enterprise, and getting started on a plan will help your organization quickly cut through the hype and see which providers can deliver value.
It’s time to strip away the hype surrounding analytics, big data and cloud computing by asking how these technologies contribute to excellent customer experiences and greater customer engagement. Those are the real catalysts of market growth and the greatest disruptive forces at work in enterprise software today.
Filtering forecasts of future technology adoption with a customer experience and engagement mindset is essential for separating hype from reality. Two excellent blog posts were published today that provide useful insights for doing this. Ray Wang’s Monday’s Musings: 10 Mega Business Trends To Watch For In 2012 provides pragmatic, insightful analysis of the progression going on from transactional to personal fulfillment systems. Many of the CIOs I’ve met with in the last two months are saying exactly what Ray has written regarding this transition. Paul Greenberg’s CRM 2012 Forecast – The Era of Customer Engagement – Part I delivers more insight than any of the financial or industry analyst reports I’ve read in the last twelve months on CRM and its intersection to social networks. He has defined customer engagement so thoroughly I am sure this post will be a classic, referenced for years to come. Both posts provide an excellent framework to evaluate the upcoming wave of new forecasts due out from research firms at the start of 2012.
Having recently read Forrester’s US Tech Market Outlook For 2012 and applying the concepts Ray Wang and Paul Greenberg discuss, here are several take-aways from that report:
- Total U.S. ICT market in 2011 was $962B with the majority being generated from software sales ($208B) followed by Telecom Services ($199B) and IT Consulting and Systems Integration Services ($188B). The following graphic illustrates the purchase of ICT product and services in the U.S. during 2011. As enterprise software companies are striving to deliver what Ray Wang is calling Experiential Systems, the majority of their core Intellectual Property (IP) was obtained from building Transactional Systems. Despite this conflict, software development methodologies including Agile give the industry a fighting chance at growth in 2012.
- Software continues to dominate both in total revenue ($208B) and growth rate, with 8.2% growth projected for 2012. In addition to analytics and Business Intelligence (BI), Forrester is predicting an increase in ERP, Middleware and SaaS-based application growth.
- Forrester is most optimistic in their forecasts for analytics, BI, Cloud Computing and Smart Computing. Cloud Computing forecasts at Forrester are indexed to sales levels of NetSuite, RightNow Technologies (Oracle), Salesforce.com, and Ultimate Software. Forrester is claiming these four vendors will generate a 23% increase in revenues in calendar Q1, 2012 over Q1, 2011, increasing and staying constant at 24% year-over-year growth from Q2 to Q4, 2012 relative to Q2 to Q4, 2011. Salesforce.com could accomplish this level of growth through acquisitions alone. They’re showing they can integrate newly acquired companies faster than Oracle, who they are challenging for global CRM market leadership in the 2012 – 2013 timeframe. When customer experience and engagement is taken into account, the forecast seems high. Salesforce knows how to translate trial users into customers. The question is can they do this fast enough in 2012 throughout the enterprise and mid-tier accounts to keep up their sales growth on track while reducing churn and increasing profitability.
- Smart Computing is defined by Forrester as platform technologies including specialized analytics, BI, service-oriented architecture (SOA) infrastructure, virtualization software, rules engines, and awareness-based technologies. Forrester is very optimistic about this area with a growth rate second only to cloud computing. Its index of the market is based on Informatica, Pegasystems, and Tibco Software. Forrester is predicting in calendar Q1, 2012 there will be 16% growth over Q1, 2011, followed by consistent 13% growth year-over-year for Q2 to Q4, 2012 relative to 2011. The following graphic compares growth of both Cloud Computing and Smart Computing.
- The inflexion point of Smart Computing will happen when analytics, BI and awareness-based technologies including RFID can be used to make customer experiences consistently positive and drive cultural change throughout a business to center on customers’ expectations. Paul Greenberg refers to this area of customer engagement in his blog post. I agree with him and see the real value of analytics not for reporting, but for being a barometer of just how customer-centric and focused on delivering exceptional customer experiences a company is becoming.
- In 2012, financial services, professional services, and manufacturing will be the three industries that dominate software purchases. Financial services (19%), professional services (15%) and manufacturing (14%) will be the largest buyers of enterprise software. Forrester believes that ERP replacements, supply chain management (SCM) and product lifecycle management (PLM) will all be proprieties in the coming twelve months.
Bottom line: Critiquing high growth technologies based on their contribution to customer experience, engagement and the creation of Customer Lifetime Value (CLV) is what matter most. Hopefully the new wave of forecasts for 2012 and beyond will take the customer – not just technology and statistical extrapolations – into account.
Calling the hype around cloud computing “deafening”, Gartner released their annual hype cycle for the 34 different technologies in a 75 page analysis today. You can find the Hype Cycle at the end of this post and I’ve provided several of the take-aways below:
- The industry is just beyond the Peak of Inflated Expectations, and headed for the Trough of Disillusionment. The further up the Technology Trigger and Peak of Inflated Expectations curve, the greater the chaotic nature of how technologies are being positioned with widespread confusion throughout markets. The team of analysts who wrote this at Gartner share that conclusion across the many segments of the Hype Cycle.
- Gartner states that nearly every vendor who briefs them has a cloud computing strategy yet few have shown how their strategies are cloud-centric. Cloudwashing on the part of vendors across all 34 technology areas is accelerating the entire industry into the trough of disillusionment. The report cites the Amazon Web Services outage in April, 2011 as a turning point on the hype cycle for example.
- Gartner predicts that the most transformational technologies included in the Hype Cycle will be the following: virtualization within two years; Big Data, Cloud Advertising, Cloud Computing, Platform-as-a-Service (PaaS), and Public Cloud computing between two and five years; and Community Cloud, DevOps, Hybrid Cloud Computing and Real-time Infrastructure in five to ten years.
- There continues to be much confusion with clients relative to hybrid computing. Gartner’s definition is as follows ”Hybrid cloud computing refers to the combination of external public cloud computing services and internal resources (either a private cloud or traditional infrastructure, operations and applications) in a coordinated fashion to assemble a particular solution”. They provide examples of joint security and management, workload/service placement and runtime optimization, and others to further illustrate the complex nature of hybrid computing.
- Big Data is also an area of heavy client inquiry activity that Gartner interprets as massive hype in the market. They are predicting that Big Data will reach the apex of the Peak of Inflated Expectations by 2012. Due to the massive amount of hype surrounding this technology, they predict it will be in the Trough of Disillusionment eventually, as enterprises struggle to get the results they expect.
- By 2015, those companies who have adopted Big Data and extreme information management (their term for this area) will begin to outperform their unprepared competitors by 20% in every available financial metric. Early use cases of Big Data are delivering measurable results and strong ROI. The Hype Cycle did not provide any ROI figures however, which would have been interesting to see.
- PaaS is one of the most highly hyped terms Gartner encounters on client calls, one of the most misunderstood as well, leading to a chaotic market. Gartner does not expect comprehensive PaaS offerings to be part of the mainstream market until 2015. The point is made that there is much confusion in the market over just what PaaS is and its role in the infrastructure stack.
- SaaS performs best for relatively simple tasks in IT-constrained organizations. Gartner warns that the initial two years may be low cost for any SaaS-based application, yet could over time be even more expensive than on-premise software.
- Gartner estimates there are at least 3M Sales Force Automation SaaS users globally today.
Bottom line: The greater the hype, the more the analyst inquiries, and the faster a given technology ascends to the Peak of Inflated Expectations. After reading this analysis it becomes clear that vendors who strive to be accurate, precise, real and relevant are winning deals right now and transcending the hype cycle to close sales. They may not being getting a lot of attention, but they are selling more because enterprises clearly understand their value.
Source: Gartner, Hype Cycle for Cloud Computing, 2011 David Mitchell Smith Publication Date: 27 July 2011 ID Number: G00214915 © 2011