As we post a lot of articles about Cloud Computing recently, I want to get all readers on track and share a Youtube clip that explains the basics of the Cloud concept in a very graphic way.

If you have problems with the embedded video, watch it directly on Youtube.

In a survey with about 700 individuals, hosting.com determined the trends in the Cloud Computing industry.

Here are the key findings:

1. The Cloud Service adoption is driven by the same key factors in small and large companies.
2. The speed of Cloud technology adoption is not related to the business size.
3. The priority to Cloud projects is not different in small and large companies.
4. Small companies adopt more Cloud Services then large companies.
5. Businesses of each size need further education in Cloud benefits, solutions and design.

Cloud Computing is not only a topic for large international companies, but also for small and medium sized enterprises. The success of Cloud Computing will be dependent on cloud-based solutions that provide reduced costs, scalability, improved service level agreements, and increased flexibility for small companies.

It’s surprising to see the high importance of small enterprises for the future development of Cloud Computing Solutions. The message of the Cloud Report is clear: Don’t underestimate the force of small and medium sized enterprises when developing new Cloud Services!

I found this an interesting insight for all those who hear the Cloud buzz and think about large companies trying to cut the IT costs.

For more information, you can download the whole Cloud Computing Trend Report from the hosting.com web site.

Australian researchers conducted a stress test on the platforms of todays major providers of cloud computing ending in interesting results. Among the testees were Amazon, Google and Microsoft.

The following results are part of a presentation the team will give at the Australian Architecture Forum in Sydney on Monday, August 24.

Major findings

• All platforms scaled gracefully under different loads. The tests were conducted simulating 2000 concurrent users.
• Response times depended heavily on the time of day and varied by factors of 20 (!) To exclude distorted results by accessing different geographic locations all durations were measured with on-platform utilities.

Interesting trivia:

• Google AppEngine disallows data processing to exceed a duration of 30 seconds. After that an exception is thrown.
• Monitoring is more than rudimentary on all platforms.

Sobering facts or expected »rusty start« of a new technology?

What makes a firms resources »strategically valuable«? Which qualities does a resource need to have in order to ensure a sustainable competitive advantage? A conceptual framework dealing with this question is the one presented by J. B. Barney in an article for the Journal of Management in the early 90’s [1] and which some of you may already heard of by the VRIO acronym.

Before we have a look at what makes resources valuable let’s first define what is meant by a resource. The article defines a resource as:

[...] [including] all assets, capabilities, organizational processes, firm attributes, information, knowledge, etc. controlled by a firm that enable the firm to conceive of and implement strategies that improve its efficiency and effectiveness.

Evaluating the internal resources of a firm incorporates a very different view on strategy than the thought schools solely focussing on the external environment. While the latter treats the competing firms as black boxes with very similar content the former opens this boxes for further inspection and acknowledges the possibility for inner differentiation. Strengths and weaknesses as active weapons instead of reactive positioning between threats and opportunities.

What makes this approach especially valuable is the broadening of the availiable strategic options. The provision of additional internal knobs open to adjustment for gaining competitive advantage. The following drawing illustrates the different perspectives.

One of the articles main points is that not every resource creates sustainable advantage. In the authors words a firm is

[...] said to have a sustained competitive advantage when ist is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors and when these other firms are unable to duplicate the benefits of this strategy.

Barney draws the conclusion that every resource resulting in sustainable advantage has to possess four attributes to qualify:

Value

Resources are said to be valuable if the improve the efficiency and effectiveness of a firm.

Rareness

In addition sustainable resources have to be rare. If resources can be easily obtained by competitors all gained advantages will be of short duration. Eventually the others will catch up restoring competitional equilibrium.

Imperfect Imitability

This attribute prevents competing firms to imitate the resources under question. The article mentions three reasons preventing easy imitation:

1. History dependent: E. g. First mover advantages, brand names developed over a long timeframe, unique non recurring situations etc.
2. Causal ambiguity: If nobody really knows why a firm achieves superior results it’s special traits can’t be recreated. Interesting aspect of this is that even the firm itself mustn’t know how it does the trick because if some managers knew how they did the trick competitors could lure them away and pay them to copy the resources.
3. Social complexity: If superiority stems from special cultural aspects of a firm this quality is too complex to be recreated in a different company setting. Because social interactions in a firm can’t be directly managed this attribute is effectively preventing any duplication efforts.

Parting thoughts

One thing that came immediately into my mind when reading the article was the question if IT does qualify by these attributes. At first glance there is no chance: If something is easily replicatable it doesn’t qualify.  Carr wins, case closed. But on further inspection there is still hope for us IT folks: Is it really so easy to just do SOA or install an ESB to catch up with other firms which did so successfully? Let’s give this a th… NO IT ISN’T. But why is this so? In my opinion it’s the factor of social complexity coming into play. If you can’t bring people together to effectively use a technology (or to use it at all) it will fail. And so it does. Again and again and again. What follows is that IT can be a competitive advantage as well as a sustainable one but only if you master the soft sides of it, too.

The second thing  I had to think of was Lean Management. Once accepted as sort of Best Practice from the East, western management set out to copy the lean tools and procedures to gain back lost territory. Did it work? If they did so with the help of their eastern colleagues: sometimes. Just by observing and doing seemingly the exactly same things: almost never. Again social complexity is one of the factors at play here: Lean is more a holistic perspective on doing business than merely a set of tools which can be analyzed and used in isolation. This brings into play the second aspect: causal ambiguity. Because the frame of mind is totally different from the classical view on strategy we sometimes simply don’t have a clue why it works.

To me the whole framework is important because it counter-balances the very deliberate/deterministic positioning school of thought. Strategy is more than choosing a generic strategy based on analyis of external factors. It’s also about building inner strengths, core competencies if you will, to achieve sustainable results. With this perspective strategy gains back it’s creative sides which is all to easy lost in combat.

[1] Barney, J. B., Firm Resources and Sustained Competitive Advantage, Journal of Management Vol. 17 NQ 1, 1991

Last week I wrote about the Web 2.0 adoption process in traditional organizations. Today I want to discuss six critical factors that determine the outcome of efforts to implement these technologies.

1. Support bottom-up initiatives from the top

Technology adoption will not work without management intervention. This point seems to be very clear for companywide initiatives, for instance an ERP rollout. By contrast, the usage of Web 2.0 technologies often starts small, sporadic and is driven by enthusiastic employees. To get these single-pointed initiatives applied to the organization, the senior management should become a role model and lead through the Web 2.0 channels.

Many employees already have a profile on professional social networking-sites like XING or LinkedIn. As our company’s consultants are spread all over Germany, the management board founded an own group within a social network, exclusively for the organization’s employees, to provide an opportunity to keep in touch easily.

2. Measure the soft side of business value

In the past, applications focused on improving the effectiveness and efficiency of a business process. The prioritization of IT-projects was easy: The project with the greatest business value was served first. But how is business value measured? How can you measure the value of lower reaction times? How can you measure the value of building your brand? How can you measure the value of staying in your customers minds? All these questions need to be answered when talking about Web 2.0 technologies.

If you can’t show the value of a tool, the management won’t support your initiative. In this case the management probably chooses the wrong Web 2.0 tool and the organization is not switching to applications that might be successful.

3. To be or not to be (in the workflow)

Until today new applications mostly replace old ones. Therefore, the new application is immediately integrated into the workflow.  As Web 2.0 initiatives are relatively new, they are often not integrated into the daily workflows. Thus, they are seen just as another “to do”, not as a tool to make the work more effective.

Get the Web 2.0 technologies into your workflows. For example, use social networks for recruiting employees or build up a wiki as platform for the internal information and knowledge exchange.

4. Motivation is about building the ego – not about money

You might ask how to get your employees to use all the fancy Web 2.0 tools. Maybe you can install a bonus system: Each employee can get an extra fee for using the Web 2.0 tools. I suggest five Euros per blog entry, how about that? Seriously: I think it’s obvious that money can’t be the motivation. Web 2.0 technologies fulfill the desire for recognition such as higher reputation of participants in web communities or acknowledging the quality and usefulness of contributions.

To successfully apply Web 2.0 technologies in your organization, you need to establish a system of intrinsic, never of extrinsic motivation.

5. The right solution comes from the right participants

Another success factor is to create a critical mass for participation. Let’s take the ERP rollout example again. You just identify the number of installations you need for functions such as purchasing or finance and accounting – and that’s it. When adopting Web 2.0 technologies you need to select users who will drive a self-sustaining effort.

If you introduce wikis and blogs to foster collaboration among workgroups, choose technology-savvy and respected opinion leaders within your organization. Some of these people should be ranked high in the hierarchy, while others should be influential scientists or employees to whom other colleagues would turn for advice or other assistance.

6. Reduce the fear with the help of clear policies

Web 2.0 projects can fail, if participants feel uncomfortable with the tool. Employees may be scared of a legal vacuum, for instance caused by anonymous posts and comments. Therefore, managers should establish reasonable policies for the usage of Web 2.0 tools. The social norms enforced by identifiable users in the participating communities can be very effective for the regulation of the communication. Furthermore, Web 2.0 technologies should provide an opportunity to audit the communication. All blog entries, comments etc. should be tracked.

What do you think about these success factors? Please, tell me about your experiences with the adoption of Web 2.0 technologies in your company!

In our series on strategy today we’ll have a look at »Ten Big Ideas of Strategic Thinking«. The collection originates from an article of Robert J. Allio [1] and comprises some of the more influential ideas in strategy. The following will be a mashup of a summary for the single points and tidbits of my own opinions and views. It’s another contribution in gathering the numerous facets of view on the strategy beast.

1. Long Range Planning

Becoming fashionable not until the 1920s, Long Range Planning forces management to look beyond the immediate quarter or year. Although almost indispensable for gaining insights into the bigger context the own company exists in theres always the danger of »overplanning« resulting in big volumes of wasted paper.

2. Strategic Analysis

Allio further divides this important part in Strategic Thinking into four modules:

• Market segmentation: Provide different products or services for different customer (needs).
• Lifecycle: Align your strategy to the lifecycle stage of the industry. For industries in the embryonic or growth stage entrepreneurial strategies are needed while mature and aging industries demand for cost control and cash- flow focus.
• SWOT analysis: Combines internal analysis (strengths, weaknesses) with the observation of external forces (threats, opportunities). Most criticized point of the SWOT: The own strength and weaknesses can be difficult to assess objectively from an subjective standpoint. Furthermore they depend heavily on the actual context like market needs, trends, competitor stregths etc. which would mean that one would need to know the strategy before knowing the relevant strengths and weaknesses.
• Industry structure: Essentially summarized by Porters Five Forces (buyers, suppliers, entry barriers, substitutes and competition)

3. Quality

W. Edwards Deming is the name to mention here. While not enthusiasticly embraced in the US at first his ideas found a big audience in Japan and prepared the base for Lean Production. Demings teachings can be summarized into 14 points and form the roots for hypes that followed like Total Quality Management (TQM), Business Process Reengineering (BPR) and Six Sigma.

4. Portfolio Theory

Boston Consulting Groups Growth/Share Matrix entered the business world in the 1960s and was the first of the portfolio theories claiming that the classification of products, services and markets enables a firm to make guided decisions on resource allocation decisions. Later proponents were the 4×5 matrix of Arthur D. Little (industry maturity/competitive position) and McKinseys 3×3 (business strength/market attractiveness).

Although one of the most known tools together with the already mentioned SWOT the BCG Matriy has come under heavy fire recently. All in all it seems that the claims it makes can’t be confirmed by studies. Though being a very interesting topic  I will elaborate on the shortfalls of these models in another blog post and not go into detail this time.

5. Scenario Planing

Other than single-point forecasts, scenarios accept the reality that forecasting the future is impossible in the long term. Its proponents deal with this dilemma by planning not just for one outcome of reality but for a whole set of parallel business universes called scenarios. Scenario planning was made popular by Piere Wack and Arie de Geus who used this approach at Shell with acclaimed huge success. De Geus also wrote the article which started the broad interest in this special discipline (Planning as Learning, Harvard Business Review (1988)).

6. Resource Allocation Models

Credence of this strategic perspective falls into two camps: Protag0nists of the industrial organization (IO) camp claim that resources should be applied to the opportunities dictated by the industrial structure the company participates in. Again Michael Porter is the name to mention here who reduced the set of availiable strategies into three generic ones: niche, differentiation or cost leadership.

On the other side the the resource-based view is located. Prahalad and Hamel brought into play the core competencies of a company. They  view the generic model as much too limited and and demand that strategies should be based on core competencies alone.

7. Corporate Culture

The implementation of strategy means changing the way you do business. Since the culture of a company determines if this change comes easy or not it is an important factor to consider. Initiatives to align culture with new strategys are difficult endeavors and this brings Change Management into play. John Kotter is the name mostly associated with strategies to apply in the process of change. His studies focus on the reasons why these processes have failed in the past and lead to a change model with eigh phases.

8. Leadership

No doubt: Leadership is vital for making strategy happen. What remains doubtful is if it can be learned and thus be consciously applied in the strategy process.

9. Metrics that matter

For making strategy happen, managers must have means to monitor the implementation effort. Starting with the DuPont formula which decomposed the Return-on-Investement of initiatives in it’s parts later metrics concerning the soft factors followed culminating in form of the Balanced Scorecard.

10. Strategic Organization Design

As the saying goes: »Structure must follow strategy.« Starting at multidivisional designs the next steps in organization fashion were the conglomerate and actually the strategic business unit (SBU). In breaking the corporate barrier strategic alliances and virtual corporations constitute the actual focus of this perspective on strategy.

Parting words

This shall be it for today. In follow-up posts I’ll pick up some of the issues raised and offer some of my own views to the topics mentioned. As you already have seen in the earlier posts: Strategy is a beast with more than one face.

[1] Robert J. Allio, Strategic thinking: the ten big ideas, STRATEGY & LEADERSHIP VOL. 34 NO. 4, 2006, Emerald Group Publishing

Just funny? Or also true?

Found via Geek&Poke.

The Web 2.0 technologies created a new type of online customers. Web users consume and create content and share experiences and opinions directly with each other. So, what does this mean for your organization? Your company needs a strategy to thrive in the online world’s environment of constant change.

The article “Managing beyond Web 2.0” proposes a strategy called LEAD (listen, experiment, apply, develop) that will help companies to manage the external image.

Listen: The organization needs to monitor and analyze what the customers are saying about the company. Use this information as an early-warning system. Probably customers are already talking about you on Facebook or Twitter? Sounds a bit like paranoia, but don’t underestimate the rapidness of change. If your organization says or does something right now, it may be discussed in the web community a couple of hours later. Instead of pushing your message to the customers, you should listen to them engage with them actively.

Experiment: There are a lot of fancy Web 2.0 tools out there – play with them. Create a company profile on social-networking sites, a blog or a daily tweet. There is no proper ROI metric available yet for measuring the effect of the Web 2.0 technology usage, but for sure it will pay off in greater customer awareness and brand engagement.

Apply: After your experiments you should apply the technologies in your company. Stay in touch with your customers; make it simple for them to communicate with you. Optimize your social-networking sites for search engines. Be visible for your target audience. To measure your success in this process step you can use web tools and quantitative analysis to track the results of your experiments. For example, every bigger blog hosting site offers tools to analyze the traffic on your blog.

Develop: The Internet is a social medium and therefore a very important part of any company’s marketing mix. But don’t see just another marketing channel to put all your messages in. Get rid of the mass-media broadcast mentality and make interactive Web 2.0 elements part of your marketing program.

I found this four-step-strategy very logical. It’s easy to understand and simplifies the Web 2.0 adoption process. What’s missing is the organizational impact. Who is choosing the Web 2.0 channels? Is the Web 2.0 communication centralized or decentralized? Who is creating the content – the marketing experts or the experts in the functional teams?

What do you think about the LEAD-strategy? Did you already implement a strategy for adopting Web 2.0 technologies? What are your experiences with Web 2.0 technologies so far? How did you organize the adoption process?

In his article, Stephen Swoyer opens a new perspective on Cloud Computing to me. Quoting Stephen Elliot, vice-president of strategy with CA Inc.’s infrastructure management and automation practice, he figures out the importance of the cloud concept for enterprises.

For Elliot, Cloud Computing is basically a conceptual refinement of pervasive virtualization. He argues that the Enterprise Cloud model is an inevitable consequence of pervasive virtualization, a virtualization with a business-centric mindset.

Cloud Computing is is about making the IT accountable for the CIO and CEO, not about virtualizing the IT. Customers will not pay the IT to only host their applications or services. Customers purchase a clearly defined service. Therefore, the Enterprise Cloud should be seen as business-process-as-a-service, not so much as software-as-a-service.

In the business-process-as-a-service model, the value of the Enterprise Cloud can be measured with business metrics. If vendors spotlight the accountability as advantage of this model, the customers would be able to provide a proper calculation of the ROI of adapting Cloud Computing. On that condition Enterprise Clouds would become reality in organizations. As computational costs continue to move downward, the financial ROI of adapting Cloud Computing will become even better in future. It’s just a matter of time before it becomes a norm for organizations to take advantage of the Enterprise Cloud.

Business and IT don’t understand what each other do. And they don’t care. In a recent paper McKinsey suggests to produce a written »annual report of IT« to deal with the problem.

Like others before me I don’t think another bunch of paper comes even close to the badly needed answer.

What about a quick litmus test for this one: Are you an IT guy? Have you ever  read the annual report of your company to understand what business is up to? Did you ever want to? If you said »No.« my bet is that you are on the safe 99.9% side of the majority. I’d suspect the same holding true for the business side: Who cares about 80 pages of non-understandable tech-speak? SOA anyone?

OK then: What is the answer? My conviction is that the misunderstandings and resentiments between both sides can only be overcome by direct personal and continuous communication. Whether one key building block in this effort comes in form of regular »board-style« meetings or by installing matrix functions reporting to both sides doesn’t really matter. I’ve seen both types working. But the premise of all working solutions has been the same: Business and IT have to become one in the minds of the people in the organization. No report will ever solve this one.

Once installed the next challenge becomes to find a common language to use during communication. How can we relate business and IT goals into a big picture that everyone in the organization can understand and commit to? More a transformation than a single answer.

No quick wins in sight, I’m sorry.