C in C P3: Cloudanomics Part 2
Speed-Read of the previous articles on Cloud Computing
Introduction 1 : Pay as you go mobiles are not the most opted choice of a mobile phone contract - Why?
Part 2: Business Managers' perspective on any new product in the market -
For some it is an opportunity to make money in short-term,
For some it is about making money but also sustaining the opportunity as a business capability
Part 3, Ch. 1: Personal life Of two managers (Wym & Qam), their current expenses; with the advent of recession and this new market opportunity, Wym and Qam intend to reduce their expenses as well as increase comfort to the family, but they make wild assumptions that their life is going to be easier and have missed to see that their life is changing in parallel.
Today's Blog Part 3, Ch. 2…
With good intentions Wym & Qam attempt to bring more value to their life and family. Typically leaders and managers operate this way in their companies: Take advantage of some new deals in the market, bring value to the company and in the process get a share too. So Dear IT, if the business is rushing to cloud computing - do you want to stop them?
If you look at the picture above, it sets a context of different expenses the two managers have and their intent to wrap them into a serviced apartment to get those benefits. Makes sense (does it???). We all know that a fully managed apartment means - many people have the key to access your home! (Security and privacy goes for a toss) Since it is serviced by someone else (even though the concierge is professionally managed and they have got security clearance) these people essentially have access to your house. So I am assuming that they have got security clearance, your belongings should be safe!
Cloudanomics Part 2: But even before discussing the security, is it not important to consider other options to reduce the cost ? What about the items highlighted in red fonts? But scrutinising existing expenses is hard work, sourcing our problem to someone else by paying a bit of extra money is okay. Coz' in long term we save more! (lots of assumptions here)
I would like to focus on the cost of other options - The economist and finance professionals usually debate the cost of choosing a particular option over the other with a term as 'Opportunity Cost' or 'Opportunity Loss'
Look at an example from the economics library website:
A student annually pays £4,000 in tuition at a state college.
Assume that the government subsidy to the college amounts to £8,000 per student.
It looks as if the cost is £12,000 and the student pays less than half.
But looks can be deceiving.
The true cost is £12,000 plus the income the student forgoes by attending school rather than working.
If the student could have earned £20,000 per year,
then the true cost of the year’s schooling is £12,000 plus £20,000, for a total of £32,000.
From <http://www.econlib.org/library/Enc/OpportunityCost.html>
My view: The author assumes the student will earn 20,000 and explains opportunity cost. But if you extend this line of view to a scenario that pans over 5 years and assume that the student doesn't join the university but goes to work: After 5 years with very mundane skills, his earnings over time is going to tamper. May live on government subsidies causing more challenges to the government and society. The opportunity cost of not doing an university degree seems worse to me.
In reality these are two different options with potentially different consequences and risks as well as benefits. i.e. not comparable options to discuss 'opportunity cost' factor. I have heard similar analogies used during business case discussions to seek approvals on not only cloud related investments, but other investments too. But the managers that I have known always try to be professional (one wouldn't compare apples and oranges).
The intent would be to build a business case of Internal IT vs. External Cloud - Fair enough it doesn't seem apples and oranges (or is it actually?). So the story continues…
Mrs Qam manages the home and is the CEO, her cook and a team of assistants make food, uses the home appliances (Qam's assets) to maintain the home; let us stretch one example.
The Chief Cook and his team goes to the local farm and buys stuff from the farmers (as wholesale) and the cook manages the dietary requirement of the whole family and delivers to requirement on time and quality. Everyone in the team has similar roles. The Cook (internal IT) delivers the food to Mr & Mrs Qam and his kid as well as to other team members. Qam (Business Manager) feels the food is excellent and is okay as long as everyone is happy. But the kid starts the tantrums; indeed it is good food, but not the exact choice of kid (User) and he is unhappy, so he doesn't do his home-work; Instead of Qam managing his kid, decides to blame the cook!
The blame goes around and Qam finds out that there is an option to just get the food delivered, house cleaned etc. He thinks about it and then decides to builds a business case to Mrs Qam to make the cooks redundant and directly goes for this PAYG model.
They apply this opportunity cost to present the benefits and move to a service provider (who they assume would take care of everything), the family can pay for those services as they use and let go of some existing assets and make money as well. (Qam's model!!)
After sometime, the family falls sick frequently, they decide to call it quits and go back to Mrs Qam's cooking (the problem: The only constraint she has lost touch and the food is horrible now!)
In parallel for cheaper cost, but with an one time investment, Wym gets a full serviced-apartment with 24x7 helpdesk (Wym's model) and he also frustrates Qam by boasting about his service provider. Now Qam's wondering how did it go wrong for me?!
After sometime Wym's girlfriend starts complaining as she starts observing that her privacy is threatened; She comes to know everyone has a key to the serviced apartment. Wym decides to take control, but finds that if he has to lock himself out, then he can't get his food delivered, he need to prepare it himself. So they come to a solution that the service providers will cook and clean the house in someone's presence but that means more cost, and Wym gets a royal grilling… decides to call it quits, but he has enjoyed a clean and nice serviced apartment facility (hates the B&B, also his girlfriend has left him!!)
The point is building a business case is easier. But drawing different options and estimating true costs and risks and comparing those options needs a level of understanding about the needs (requirements), the effects and after-effects and also the context (as-is) is important. So who or which team can evaluate the as-is, the to-be capabilities, what works and what doesn't?
Who would debate and recommend if a full end to end serviced apartment is the right choice or is it to buy specific services that provides value as well as ensures your privacy and security is the right way to go about?
There is an underlying theme that runs here in the example. It is not a simple case of Internal IT vs. External Cloud is it? and security is not the only risk here. (though it is a high priority one)
Mrs Qam runs many processes or tasks. Moving one or all of those tasks to cloud or similar models is not an easy decision and needs to be evaluated. As we saw, if these tasks are performed by someone else and in case you decide to exit, you may be in the same situation as Qam's family. Your family has lost these capabilities and now it is going to be very difficult to re-build them. This is where Enterprise Architecture fits in.
NB: Answer to cloud computing cannot be drawn (as one size doesn't fit all), but when a cloud offering is presented, a manager needs to question - how am I executing this service today, can I do something to this service to reduce costs internally? Or By choosing to subscribe to this service in PAYG, will it save money in short-term or can I save money as well as use it as a capability to sustain my business. Else it will be similar to Qam selling his assets to move into a fully serviced apartment.
Next Blog: C in C Part 3 - Seeing cloud as an extended capability!
