How to face the challenges and harness the potential of cloud computing
L. Willcocks, W. Venters, E. Whitley
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Moving to the Cloud Corporation
How to face the challenges and harness the potential of cloud computing
L. Willcocks, W. Venters, E. Whitley
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About This Book
Drawing on an international survey of over 1, 000 business and executives, this book provides a management perspective on cloud technology. It outlines the need to know information for strategic decisions on cloud technology including its capabilities, how it can be implemented securely and the way forward for the next ten years.
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How to locate the cloud phenomenon? Cloud’s profile has been very high in the media since 2008. On corporate radars, cloud has been rising from something to note through something we can use to something that may help us transform the business. Those new to technology watching will recognize a bandwagon and want to jump on. The old technology watchers will have seen much of this before, through waves of technological advances. When moving to cloud, they will take a more pragmatic, better informed, more granular approach to the latest gee-whizzery. This chapter is designed to support such a perspective. We take a longer-term perspective on cloud, backwards, as well as forwards. For both history and the likely future have a lot to teach us about how to act now.
An understanding of the fundamental information and communications technology shifts from the 1960s to 2025 provides a starting point for exploring cloud-based technologies and their challenges and implications for organizations. There are, of course, all too many predictions about technology futures. In this chapter we will try to focus on the more credible and objective attempts to move our understanding forward. Moschella makes much sense in positing four main eras – so far – in information and communications technology (ICT) adoption and use.1 These are shown in figure 1.1. Each era has seen roughly a six- to seven-year cycle of investment in specific technologies. Strassmann explains that, although technology innovation cycles have shortened, computer adoption times have stayed at about seven years.2 This arises because it takes at least that long to institutionalize related managerial, social and organizational changes. There have been some notable exceptions since, of course, but the point on institutionalization has often been overlooked, as we show when we consider cloud-based technologies and innovation in chapter 6.
Here we will first look at each era and its underlying economics. The basic shape of the argument follows Moschella, Strassmann, and Willcocks and Graeser.3 What follows is, necessarily, a simplified overview, but note that figure 1.1 depicts eras overlapping at many points. After outlining the four eras, we will then explore in more detail the fourth era in the light of more recent reports and predictions about the direction of technologies in general and ICTs in particular.
THE SYSTEMS-CENTRIC ERA 1964–1981
It is generally accepted that what Moschella calls the system-centric era began with the IBM S/360 series – the computer industry’s first broad group of steadily upgradable, compatible systems. The dominating principle through most of this period was that of Grosch’s law. Arrived at in the 1940s, this stated that computer power increases as the square of the cost – that is, a computer that is twice as expensive delivers four times the computing power. This law favored large systems development. Investment decisions were fairly simple initially and involved centralized data centers. IBM dominated supply and protected its prices: ‘one negotiated delivery schedules and technical support, not costs or budgets.’4 In response to dissatisfaction with centralized control of computing by finance functions, there followed centralized time-sharing arrangements with non-finance functions, some outsourcing by scientific, engineering, and production departments to independent service suppliers and subsequently moves toward small-scale computers to achieve local independence. This led to stealthy growth in equipment costs outside official central IT budgets, but also a dawning understanding of the high life-cycle support costs of systems acquired and run locally in a de facto decentralized manner.
From about 1975 the shift from centralized to business-unit spending accelerated, aided by the availability of minicomputers. Also, in a competitive market, prices of software and peripherals fell rapidly and continuously, enabling local affordability, often outside IT budgets and embedded in other expenditures. Without centralized control, it became difficult to monitor IT costs.
FIGURE 1.1
IT Investment Cycles 1964–2025 (adapted from Moschella, and Willcocks and Graeser)
THE PC-CENTRIC ERA 1981–1994
The PC-centric era began with the arrival of the IBM PC in 1981. The sale of personal computers (PCs) went from US$2 billion in 1980 to $160 billion in 1995. This period saw Grosch’s law inverted. By the mid-1980s the best price/performance was coming from PCs and other microprocessor-based systems. The underlying economics was summarized in Moore’s law, named after one of the founders of Intel. Moore’s law stated that semiconductor price/performance would double every two years for the foreseeable future. The prediction has remained fairly accurate into the 2000s, helped by constantly improved designs and processing volumes of market-provided rather than in-house developed microprocessor-based systems. The PC-centric era saw shifts from corporate, mostly proprietary, to individual, commodity computing. The costs of switching from one PC vendor to another were low, while many peripherals and PC software took on commodity-like characteristics. A further shift in the late 1980s seemed to be toward open systems, with the promise of common standards and high compatibility. However, it became apparent that the move was not really from proprietary to open, but from IBM to Microsoft, Intel, and Novell. Subsequently many of the open systems initiatives were scaled back significantly.
These technical advances provided business unit users with enormous access to cheap processing. ICT demand and expenditure were now coming from multiple points in organizations. One frequent tendency was a loosening of financial justification on the cost side, together with difficulties in, or lack of concern for, verifying rigorously the claimed benefits from computer spending. From 1988 onwards, technical developments in distributed computing architecture, together with organizational reactions against local, costly, frequently inefficient microcomputer-based initiatives, led to a client/server investment cycle. The economics of client/server have been much debated. The claim was that increased consolidation and control of local networks through client/server architectures would lower the costs of computing significantly. However, Dec, for example, argued that a client/server set-up for 5000 users costs 70 percent more than a comparable mainframe/terminal configuration.5 Strassmann suggested two reasons for this: the propensity to specify the latest technologies resulting in continuous high-cost upgrades and difficulties in anticipating the high personnel support costs associated with client/server.6 Further pressures on technology, support, and training costs also came from users demanding instant keystrokes, rapid database access times, and seamless network functionality.
The PC-centric era saw a massive explosion of personal computing, with, for example, some 63 million PCs built in 1995 alone. However, though the equipment and software was inexpensive on a price/performance calculation, it did not usher in a period of low-cost computing. Constant upgrades, rising user expectations and the knock-on costs over systems life-cycles saw to that.7 By the mid-1990s the cost per PC seat was becoming a worrying issue in corporate computing, especially as no consistent benchmarks on cost seemed to be emerging. Published estimates ranged regularly from $3000 to $18,000 per seat per year, probably because of differences in technology, applications, users, workloads, and network management practices. From the late 1980s one increasing response to rising computing costs, especially mainframe, network, telecommunications, and support and maintenance was outsourcing, mostly selective, but in some cases ‘total’, that is handing over computing, representing over 80 percent of the IT budget, to third-party management. As Willcocks and Lacity point out, this propensity continued into 2012/13.8
THE NETWORK-CENTRIC ERA 1994–2005
Though the Internet has existed for over 25 years, it was the arrival of the Mosaic graphical interface in 1993 that made possible mass markets based on the Internet and World Wide Web (WWW). This era was defined by the integration of worldwide communications infrastructure and general purpose computing. Restricting as it does WWW graphical capabilities, communications bandwidth began to replace microprocessing power as the key commodity. Attention shifted from local area networks (LANs) to wide area networks, particularly Intranets. Even in the late 1990s there was already evidence of strong shifts of emphasis over time from graphical user interfaces to Internet browsers, indirect to online channels, client-server to electronic commerce, stand-alone PCs to bundled services and from individual productivity to virtual communities.9
Economically, the pre-eminence of Moore’s law was being replaced by Metcalfe’s law, named after Bob Metcalfe, the inventor of the Ethernet. Metcalfe’s law states that the cost of a network rises linearly as additional nodes are added, but that the value can increase exponentially. Software economics have a similar pattern. Once software is designed, the marginal cost of producing additional copies is very low, potentially offering huge economies of scale for the supplier. Combining network and software economics produces vast opportunities for value creation. At the same time the exponential growth of the number of Internet users from 1995 suggested that innovations that reduced use costs whilst improving ease of use would shape future developments, rather than, as previously, the initial cost of IT equipment.10
By 1998 fundamental network-centric applications were e-mail for messaging and the World Wide Web – the great majority of traffic on the latter being information access and retrieval. Transaction processing in the forms of electronic commerce for businesses, shopping, and banking for consumers and voting and tax collection for governments were also emerging. The need to reduce transaction costs through e-commerce resulted in a further wave of computer spending. Here also there were real challenges for the Internet’s ability to provide levels of reliability, response times and data integrity comparable to traditional online transaction processing expectations. Dealing with these challenges had large financial implications. Markets were also developing for audio and video applications. A key technological change throughout was that most of the existing PC software base needed to become network-enabled. Moschella also predicted a shake-out in the ways in which transmission services would be provided.
These developments and challenges depended on the number of people connected to the Internet and there were, in this era, significant national differences in this metric. However, as more people went online, the general incentive to use the Internet increased, technical limitations notwithstanding. One possibility mooted at the time was that IT investment would lead to productivity. In turn this would drive growth and further IT investments. The breakthrough would be when corporations learned to focus computing priorities externally – on reaching customers, investors, suppliers, for example – instead of the historical inclination primarily toward internal automation, partly driven by inherited evaluation criteria and practices.11 Even so, as Moschella noted at the time:
much of the intranet emphasis so far has been placed upon internal efficiencies, productivity and cost savings … (and) … has sounded like a replay of the client/server promises of the early 1990s, or even the paperless office claims of the mid-1980s.12
A CONTENT-CENTRIC ERA 2005–
It is notoriously difficult to predict the future of information technologies. Even technologists struggle. For example, Ken Olson, founder of DEC, predicted in 1977 that there was no reason why anyone would want a computer in their home and Bill Gates once suggested that Microsoft would never make a 32 bit operating system. For the period from 2005 we already have some strong trends to draw upon. Moschella put forward one plausible view about where these would lead and we build upon his suggestions below. He outlines shifts from electronic commerce to virtual businesses, from the wired consumer to individualized services, from communications bandwidth to software, information and services, from online channels to customer pull, and from a converged computer/communications/consumer electronics industry value chain to one of embedded systems. A content-centric era of virtual businesses and individualized services would depend on the previous era delivering an inexpensive, ubiquitous, and easy-to-use high bandwidth infrastructure. For the first time, demand for an application would define the range of technology usage rather than, as previously, also having to factor in what is technologically and economically possible. The ICT industry focus would shift from specific technological capabilities to software, content, and services. These are much less likely to be subject to diminishing investment returns. The industry driver would truly be ‘information economics,’ combining the nearly infinite scale economies of software with the nearly infinite variety of content.
Metcalfe’s law would be superceded by the law of transformation. A fundamental consideration is the extent to which an industry or business is bit- (information-) based as opposed to atom- (product-) based. In the content-centric era the extent of an industry’s subsequent transformation would be equal to the square of the percentage of that industry’s value-added accounted for by bit as opposed to atom processing activity. The effect of the squared relationship would be to widen industry differentials. In all industries, but especially in the more ‘bit-based’ ones, describing and quantifying the full IT value chain would become as difficult an exercise as assessing the full 1990s value chain for electricity.
At the time he wrote, Moschella’s was an inspired guestimate about the future. A lot has happened since to give his overall vision a great deal of plausibility. Technology has advanced at great pace in the new century, with the convergence of technologies into what has come to be called cloud computing being a major development, especially since 2008.
Let’s look at more recent examinations of present and future technologies and their implications, in order to give context and a time dimension to the cloud focus of this book. In doing so, let us bear in mind that ‘cloud computing’ and ‘cloud’ are shorthand terms for a complex set of converging information- and communications-based technologies supporting and running through the World Wide Web and Internet. There is no one cloud but private, public, and hybrid clouds, together with different types of services offered through cloud including Software-as-a-Service (SaaS) Infrastructure-as-a-Service (IaaS) and Platform-as-a Service (PaaS) and hosted services. These technical issues will be dealt with in the next chapter. In this chapter, we seek to give the bigger context and time horizon for what we call moving to the cloud corporation, by which term we are referring to the increasing use of cloud technologies by organizations in the long-term pursuit of becoming digital businesses.
