A business model describes the rationale of how an organisation creates, delivers, and captures value.¹

When I consider the way on-demand services has changed business models, I think of the traditional retail model, which was a bricks-and-mortar store with trained staff to sell the goods. The value proposition—what was really being sold—would be the variety of goods combined with the knowledge of the sales team. For example, a video store of the ’90s provided me with the value of a physical location plus a relatively large assortment of videos that I could either purchase or rent. The value was the physical repository of videos and the selection.

Now consider online retailers and what they are selling—and you might think it’s the goods. But what I think online retailers are selling is the ease of access to goods that are relevant to the consumer, delivered in a consistent and predictable timeframe, at a known cost. The important aspect to this value proposition is that the value is not in the goods themselves. The online retailer has created a marketplace for consumers ready to consume through its procurement and delivery channel.

This business model allows the online retailer to place any product or service  into its consumption process and deliver value. Which gives the online retailer the agility to seek out different suppliers to capture more consumers without changing its core value proposition or redeveloping its consumption process.

The value proposition changed between the bricks-and-mortar and the online businesses. And, on-demand services was the enabler of this business model—the ability to easily consume a product or service that is relevant to me with consistent delivery and known costs. And, it has changed the value proposition of the retailer from the goods and trained staff.

The Effect on the IT Department

Similarly the internal IT organization has a B2C relationship with the business side of the organization. The value proposition offered to the consumer (the business) by the IT organization has historically been the skillset as an integrator/developer of required technologies and the foundational compute services provided. With a largely captive market in the past, IT has operated like a traditional B2C retailer.

As we know, the captive market is no longer captive—IT’s consumer can now access a broad range of services, including many that previously have only been available through their internal IT organization. However, just as the retail consumer doesn’t necessarily want a relationship with hundreds of suppliers, the business consumer also doesn’t want to manage hundreds of suppliers to get the IT services they need. Business consumers want the ability to easily access services that are relevant to them in a timely manner and at a known cost —ideally from a single point. These requirements now provide more value to the business consumer than highly customized, perfectly-fitting IT solutions that involve extensive integration and development and have varying delivery times and costs.

The business consumer has changed what’s important to them. As a result, the internal IT department is being challenged to align with this change in their consumers’ requirements and value proposition and provide known outcomes, known delivery times, and known costs. Failure to do so will likely increase the use of “shadow IT” and potentially relegate IT to a diminished tactical role.

IT needs to operate a business model similar to an online retailer. The value is not in the compute good or service itself—the value is ease of access to many suppliers through a single store front, with known delivery time and known cost. This requires a significant change inside the IT department to a mindset of understanding the consumer to ensure that relevant goods are offered, and in doing so, leverage external suppliers and defer the risk to them when introducing those goods. This is especially important while the demand for an offering is being evaluated.

If used effectively, the pay-as-you-go finance models and automation offered by established public cloud providers can provide improved delivery times and greater agility to the business, while also deferring up-front costs to provide the goods until the actual demand is fully understood.

My point is that it’s important to understand the rationale behind consuming public services—in this case, to provide capability while evaluating actual demand. Public cloud solutions are not necessarily the most effective means of reducing costs of IT services in every situation. And, to make the most effective use of public cloud requires that an organization understand the services it provides and cost of those services.

In my next blog in this series, I’ll discuss the implementation of an on-demand services business model—an implementation that transforms the IT department from a traditional B2C retailer to the equivalent of the online B2C retailer. To deliver on this requires a transformation within the IT department from organizational structure, technology, and operational perspectives. I’ll also cover the ideal organizational structure, product offerings, associated service definitions and how to leverage public cloud to defer risk and understand your consumers’ demand.

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Michael Francis is a principal systems engineer at VMware, based in Brisbane.

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Working with numerous customers on their journey to the cloud has exposed the Accelerate team to a number of metrics that are used to determine an organization’s health and overall value to the business. Let’s focus on a new financial metric that is gaining popularity: private cloud versus public cloud cost per workload.

In their seminal paper, The Balanced Scorecard—Measures that Drive Performance, published in the Harvard Business Review, Robert Kaplan and  David Norton introduced the balanced scorecard as a performance measurement framework. It built on traditional financial measures by adding important non-financial performance indicators to the mix. As a result, it gives executives and managers a more balanced view of organizational performance.

The balanced scorecard has proven to be an effective method of communicating an organization’s overall strategy by establishing a balanced set of tangible goals and the framework of measuring progress toward those goals. The balanced scorecard suggests that we view the organization from four separate perspectives, and to develop metrics, collect data, and analyze the data relative to each of the perspectives, which are:

1. Financial Perspective – To succeed financially, how should we appear to our shareholders?
2. Internal Business Perspective (Process) – To maximize our business value, at which processes must we excel?
3. Customer Perspective – To achieve our vision, how must we appear to our customers?
4. Innovation and Learning Perspective – To achieve our vision, how will we sustain our ability to change and improve?

CIOs quickly saw the legitimacy of the balanced scorecard and have successfully used it when communicating strategy to their team members, and the value of their information technology activities in relation to their organization’s business executives and customers.

Each of the four perspectives is important, but the one that gets the most attention from business executives — and seems to cause the most concern and confusion for CIOs — is the Financial Perspective performance measurement. It can also be said that the Financial Perspective performance measures are the most important for business executives because the primary language of business is conducted in financial terms – How much will it cost? How much will this save over time? What is the financial break-even period? What is the ROI? — and so forth.

CIOs have responded to the Financial Perspective performance measures of their balanced scorecards by tracking financial metrics such as:

• Actual to Budget: How does actual OpEx spend compare to the original OpEx budget?
• Forecast Accuracy: Is the accuracy of the OpEx spend forecasts over the past 12 months within plus/minus two percent?
• Cost-Per-Business-Unit Trend: Is the IT total cost of ownership (TCO) per unit of business output (e.g., airline seat mile flown, mortgage transaction count, automobiles manufactured) increasing or decreasing over time?

With the advent and popularity of cloud concepts and technologies for IT organizations, we now ask:  What would a CIO want to see as a financial metric in the balanced scorecard to represent their organization’s journey to the cloud?

A few organizations I have met with recently, and which have mature metrics tracking and reporting in place, have already answered the question. They measure their IT TCO per workload in their private cloud against the price of hosting the same workload on a public cloud service such as Microsoft’s Azure or Amazon Web Service’s EC2. When doing so, they also add data transfer into the cost, that is, the cost of communicating the data in and out of the service to computational workload costs incurred.

The metric that compares private cloud workload cost versus all-in public cloud workload pricing is extremely valuable to the CIO. If your private cloud workload cost is lower than public cloud workload pricing, you are showing immediate business value through your IT operation. Conversely, if your private cloud costs are too high, business management is certainly justified to ask: Why should we use your service if we can get it cheaper from a public cloud provider?

Some organizations are so confident in calculating the cost of their private cloud costs per workload and the efficiency of their operation that they have started to build in an added twist. These efficient operations are using the difference or spread in costs between private and public solutions as IT operational “profit.” In turn, the “profit” is used to acquire new equipment and software as they refresh their private cloud going forward. These organizations are truly running IT like a business.

If you aren’t familiar with the balanced scorecard for IT, please give it a deeper look. While doing so, also consider including a new metric to the Financial Perspective performance measures, and include the private cloud versus public cloud cost per workload.

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Mark Sarago is a strategist with VMware Accelerate Advisory Services.

VMware Accelerate^TM Advisory Services can help you define your IT strategy through balanced transformation plans across people, process and technology. Visit our Web site to learn more about our offerings, or reach out to us today at accelerate@vmware.com for more information.

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You can follow Rob @cloud_rob

Tomorrow VMware announces the launch of the VMware vCloud® Hybrid Service™ — a true hybrid cloud solution connecting and integrating on-site and off-site IT environments through a common management platform with a design that ensures all (new and existing) applications run the same way. This type of a hybrid cloud solution ought to make most IT personnel and leaders take notice for numerous reasons. (To join the live online event, register here.)

Different industries require different types of business agility. For example, a retailer undergoing aggressive expansion may require the ability to quickly set up new store operations. A financial services company pursuing an acquisition strategy needs to be able to assimilate new entities to quickly realize synergies and benefits. An online gaming company may need the ability to quickly set up a platform in anticipation of a wave of new gamers following the release of a new hit game. In the past few years, to accommodate these types of requests, IT has found itself in a de facto service broker role. The increased sophistication of end users coupled with the ubiquity of external cloud service providers has forced internal IT teams to meet the needs of application developers, QA testers, and even production users as quickly as it takes to enter a credit card number. Therefore, how can IT organizations, which still have the dual task of maintaining the physical environment and an existing virtual environment, transform to meet such expectations?

With vCloud Hybrid Service, VMware utilizes many of the same products our customers use to setup, operate, and manage their existing internal cloud(s). Migrating workloads into the VMware hybrid environment takes no additional process, people, or technology work on the part of customers. This design capability is in stark contrast to decisions to consume from other service providers. In those instances, assuming IT had a say in the matter, there is a completely different set of tools, processes, and skills utilized to manage the external cloud environment; further straining already constrained IT resources.

Yet, the more likely scenario for organizations running workloads in an externally hosted environment is that the decision was made by end users, while their IT organization suffers the consequences of supporting them, at costs often not readily apparent to the business. VMware vCloud Hybrid Service will provide a remedy to this scenario by allowing IT to proactively identify criteria for workloads to be migrated into an external environment. This results in several benefits for the overall enterprise: operational cost savings, ability to utilize existing processes (change management, incident management, help desk), leverage existing skill sets, meet customer SLAs, and provide agility to the business. This list is a small fraction of the outcomes of having a proactive approach to consuming external cloud services. Ultimately, IT can add vCloud Hybrid Service into its service toolkit to better execute on the service broker role.

An enterprise CIO I used to work with used the comparison that IT was like the electric company: no one noticed unless the lights went out. It was his way of highlighting the essential nature of technology services. However, in the era of cloud computing, the “new IT” provides a lot more than just “juice.” IT organizations are becoming one element of the competitive advantage companies seek in the marketplace. This is one of the reasons why hybrid cloud is such a key component the CIO’s toolkit. Leveraging a hybrid cloud solution empowers IT organizations to continue to rise to meet the challenges of their business users, eliminate the “cowboy” mentality of end users making IT decisions, and continue to meet the quality standards for day-to-day operations.
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Padmaja Vrudhula is a strategist with VMware Accelerate Advisory Services.

VMware Accelerate™ Advisory Services can help you define your IT strategy through balanced transformation plans across people, process, and technology. Visit our Web site to learn more about our offerings, or reach out to us today at: accelerate@vmware.com for more information.

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I’m a principal systems engineer with VMware and have been involved in the development of our cloud operations services. I’m sharing my experiences through a series of blogs pertaining to on-demand services. In this first blog, I reflect on what got us to this point and will follow this up with a discussion on how on-demand services transform both business models as well as the engagement model between enterprise IT and the associated business. In the final entry I’ll recommend how on-demand services can be delivered effectively—where the rubber hits the road!—and I’ll get into some specifics.

On-Demand Services, Part 1 – Remind me of how we get here again…

I have been with VMware for nearly seven years and in the IT industry for 20+ years—and over that time, like others, I have seen many changes. I think the biggest game changers in the past two decades are the smartphone and tablet form factor computers. Both devices have brought a mobility and price point revolution to computing that has enabled access to information to a very broad population from anywhere, at any time. This combination of form factor and ease of access to information through self-service mechanisms almost overnight changed the relationship between enterprise IT and the end user.

Let’s look back—I had a O2 Windows-based mobile that I used for business in the early 2000s, and it was great. I had access to email in a rich interface and integration with my contacts and global address lists anytime I needed them. And, I could communicate with corporate messaging in a small form factor. However, what it didn’t give me was the flexibility to access information like I could with my home PC—I couldn’t easily extend it to run other applications. And unlike my home PC with its mouse-driven interface, this phone forced me to use the keyboard—which was like trying to navigate in Windows for workgroups using only a keyboard.

Then came the next generation of smartphone and the advent of the touchscreen, which was analogous to the introduction of a mouse to our personal computer. The interface was easier to use and navigate and could be so much richer from a features standpoint. But the real power was that I could access a new universe of applications through a single self-service portal. And, the applications were cost-relevant, which meant they were easy to consume and demo in order to select an appropriate set of applications that worked best for my specific needs. It changed the phone from being a fixed-purpose device with keyboard control to a touchscreen-driven, openly flexible device ready to provide me with access to the world at my fingertips, from wherever I was.

For the consumer, it was the simplicity to access a marketplace of application services and then self provision a service that was the point where so many rapidly engaged in this transformation. This ability to self service combined with the size of the marketplace fueled the prolific use of the successful smartphone and tablet platforms. Consumers had a single storefront with access to thousands of application service suppliers.

The on-demand services built into these consumer devices created a broad ecosystem of suppliers eager to be able to showcase their wares. The single application store provided a single location for consumers to shop for services. Do you see the similarities? In the past, the enterprise IT organization was “everything IT” to everyone in the organization—from manufacturer, to distributor to reseller—and the consumer had little choice. Stepping up to meet demand, software as a service (SaaS) providers are the smartphone application builders for enterprise services, and like smartphone applications, more and more consumers seek their services.

So what’s missing from this equation? What’s missing is an equivalent enterprise-class, consumer-relevant application store with access to all IT services. An on-demand services capability within the enterprise to be the storefront to a varied selection of IT services—some sourced internally, some externally.

There’s another aspect to this transformation—and that’s the ease of creation, delivery and price point of these smartphone applications. All of which created a need for an agile application platform offering a low-cost of entry to feed the demand of so many new suppliers entering the market. Further, the swings in consumption of suppliers’ offerings has perpetuated the need from application suppliers to pay for flexible-scaling, consumption-based models for underlying compute capacity.

To sum things up, the on-demand services in our smartphone and tablet devices opened up access to services and information beyond what was previously available, using a single application store interface that made things simple to consume. It moved the power base of information access from enterprise IT into the hands of the consumer. The velocity of uptake of these consumer devices spawned cloud computing, cloud computing service providers and the concept of service consumption-based computing. On-demand services have transformed consumer information access.

I’ll follow up soon on how the introduction of on-demand services into the enterprise can transform business models and the engagement model between enterprise IT and the business.

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Michael Francis is a principal systems engineer at VMware, based in Brisbane.

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Most of my career as a chief information officer was in the financial services field, including mortgage banking, insurance and auto lending/leasing. Financial services companies, as well as healthcare providers and insurers, have heightened sensitivity to industry compliance rules and customer privacy concerns. As a result, the IT organization often prioritizes its focus on a tight security profile.

Compliance and privacy concerns range from restricting access to customer Personally Identifiable Information (PII), patient healthcare records (HIPAA compliance), and the company financial data or customer equity and bond trading transactions (SEC compliance). Breaches to data security that result in violations of compliance and privacy rules can result multi-million dollar fines or severely tarnishing a well-established brand.

It was not uncommon for my organization’s chief risk officer or chief legal counsel to forcibly mandate that no company or customer data move beyond the “four walls” of our dedicated data centers.

Recently, as a VMware Accelerate Advisory Services strategist working with a global financial institution, I saw this security mandate extend to a prohibition against the use of public cloud services or the use of multi-tenant, co-located data centers for business software application development, quality assurance procedures, and high-volume stress-testing activities—even when the underlying test data was completely fictitious! (click on image to download related case study)

The main concern with using a public cloud is that services are typically provided in multi-tenant environments. Multi-tenancy is the norm because it significantly reduces the operating costs for the public cloud provider. As a result, financial services, healthcare and insurance companies usually bypass pubic cloud solutions in favor of implementing private clouds within wholly owned or dedicated data centers.

The capabilities offered by the software-defined data center (SDDC) are perfect for private clouds, and accordingly, are an appropriate fit for financial services, healthcare and insurance companies that operate dedicated data centers.

SDDC provides software systems and technologies to virtualize networks and storage, as well as servers. SDDC implementations result in reducing overall CapEx and OpEx costs while enhancing automated workload provisioning, pooling resources and application security.

Financial institutions, healthcare and insurance companies that are early adopters of SDDC technologies are focused on implementing the components in dedicated private clouds. I expect this trend to continue as SDDC features become more widely adopted in the near-term future.

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Mark Sarago is a business solutions strategist with VMware Accelerate Advisory Services.

VMware Accelerate^TM Advisory Services can help you define your IT strategy through balanced transformation plans across people, process and technology. Visit our Web site to learn more about our offerings, or reach out to us today at: accelerate@vmware.com for more information.

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Figure 1: End-to-end solution completely owned and delivered by NYSE Technologies

Jason Hill, VMware’s Head of Strategy and Transformation – Technical Services EMEA, recently presented at Cloud Nation, the Enterprise Architecture Leadership Forum, where he introduced how companies like NYSE Technologies are helping financial services firms achieve business agility through cloud computing, including faster product launch, real-time data management and support for trading in new markets.

In this video, Saurabh Misra, Solutions Consultant, NYSE Technologies, illustrates two use cases of the NYSE Technologies Capital Markets Community Platform. The first use case (in figure 1 above) features a client case study of a US firm looking to extend services to Tokyo with no local footprint.; the second is an investment firm looking to reduce technology costs, gain access to new technologies and reduce time-to-market for new strategies. 

According to an independent research study* by Management Insight Technologies, the path to ITaaS is a three-phase journey. This VMware infographic illustrates that CIOs who are moving their organization forward on the journey are unlocking new forms of value for the business.

 * From an independent study conducted by Management Insight Technologies, the fourth annual study of its kind. Its findings were gathered through a blind market sample spanning several countries, weighted by customer size in each region.

I recently listened to an interview with Barry Schwartz, author of The Paradox of Choice¹. In his book he explores the modern Western industrial society tenet that, as individuals, in order to maximize our welfare, we all need to have freedom—and the way to maximize individual freedom is to maximize freedom of choice. So what happens if consumers, for example, have seemingly unlimited choice?

Schwartz’s hypothesis is that the sheer volume of choice in front of consumers today causes paralysis rather than liberation. Instead of selecting “a thing” that best suits us, we are confused by all we have to choose from and are often dissatisfied with our ultimate choice (the pursuit of perfection effect). The author goes on to suggest there may be a causal link between the increased percentage of depression cases in Western societies and the choice paradox. Schwartz suggests that the magic number for choice in retail is between six and eight; under six and it feels like we have no choice, and over eight—too much choice.

I have observed this effect for quite a few years now, and I term it the “Boost Juice effect.” A number of years ago in Australia, there was a surge of juice bars, the most recognizable being Boost Juice. There was one other major juice bar chain (its name escapes me), and several smaller ones across the country. At the time, Australia was going through the juice version of the Dutch Tulip craze—juice bars on every street corner.

The difference for me between Boost Juice and the also-rans was not the quality of product, rather that Boost Juice had a limited menu, and it was relatively simple to choose your juice. If I wanted a smoothie, there were six flavors to choose from and similar for a fresh juice. The other bars went with the total freedom of the “make it yourself” formula. I had one juice from this store, and to be honest I found the process to make my own juice confusing, and frankly it took me too much time to make my mind up. Sure the juice was fine, however my experience wasn’t great. While I’m not saying the other stores disappeared solely due to “the paradox of choice” conundrum, I do believe it was a contributing factor.

So What Are the Implications for IT?
My position is that a contributing factor for failure or missed objectives in technology programs and transformation endeavors is too much freedom of choice. With so many conflicting and complementary options from different vendors, CIOs and IT management—with the best of intentions—strive for perfection and, for the same reason as consumers, are ultimately let down by the experience. Instead of looking for the best-of-breed products at each level in the stack, make decisions from a viewpoint of integration, solution-orientation and integrated services.

When assessing the purchase an IT solution, ask whether:

1. The vendor provides an integrated solution; do I have to buy plug-in components from other vendors to complete the stack? My observations are that for some of our customers integrating so-called best-of-breed products versus single vendor solutions often drives integration and support issues during and after the project. It’s the old adage, “perfection is the enemy of delivery.”
2. Are there clear reference sites where you can verify the integration of the vendor solution? Similar to throwing meat into the water and telling a shark not to eat, some vendors will promise any and all without providing clear evidence.
3. Is the vendor strategy clear, concise and is the strategy and roadmap complementary to your IT and business objectives?

Definitely use competition for your own benefit; however don’t go mad with choice. Limit choice, and be smart and focused on your desired outcomes and long-term objectives. VMware provides product suites—cloud infrastructure and EUC solutions—that are heavily integrated and backed up by strategy and technology consulting services. Over time other vendors will follow, providing suites or solutions rather than point products. The VMware vCloud Suite for example, is a complete cloud infrastructure solution covering the hypervisor layer right up to the cloud portal, managing and monitoring layer. This suite removes complexity by simplifying choice, while being flexible enough to meet customer needs.

As a consumer, you don’t need to buy separate hypervisor, automation, security, monitoring and management components and then throw the integration dice. Of course, you can if you wish—choice hasn’t gone away. It’s up to you how much choice you want, and you can dial it up or dial it down. I believe too many years of “dialed-up” choice is one of the contributors to project blowouts caused by cost overruns and missed delivery targets.

Above all else, IT management should strive for 100 percent perfection in project delivery and lifecycle management. Ask yourself whether the level of choice is providing a better project outcome or rather is increasing the risk of project delivery. Where possible, limit choice and think strategically around proven integrated solutions to meet your business objectives.

¹Listen to Schwartz’s “The Paradox of Choice” TED talk
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Daryl Bishop is business solutions architect for VMware Accelerate Advisory Services, based in Melbourne, Australia.

VMware Accelerate^TM Advisory Services can help you define your IT strategy through balanced transformation plans across people, process and technology. Visit our Web site to learn more about our offerings, or reach out to us today at: accelerate@vmware.com for more information.

Would you like to continue this conversation with your C-level executive peers? Join our exclusive CxO Corner Facebook page for access to hundreds of verified CxOs sharing ideas around IT Transformation right now by going to CxO Corner and clicking “ask to join group.”