8 Steps to Cloud Success: A Cloud Roadmap is the Path to Business Agility

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8 Steps to Cloud Success :

A Cloud Roadmap is the Path to
Business Agility

About Sand Hill Group

(http://sandhill.com) provides strategic management,

investment, and marketing services to emerging market leaders. Sand Hill
Group is best known for its work in the $600-billion software and services
market. As founder of the “Enterprise” and “Software” conference series, Sand
Hill Group has been credited with uniting the software business ecosystem
of executives, entrepreneurs, investors, and professionals. The firm is also
the publisher of SandHill.com, the premier online destination for business
strategies for the software, cloud, and mobile ecosystem. The site and its
newsletters are read by thousands of top software industry executives as well
as CIOs and IT buyer executives. Sand Hill Group also funds primary research
into key technology and business model trends that impact business in the
software, cloud, and mobile ecosystem.

This paper was made possible by SAP

8 Steps to Cloud Success: A Cloud Roadmap is the Path to Business Agility

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8 Steps to Cloud Success

A Cloud Roadmap is the Path to Business Agility

CIOs participating in Sand Hill Group’s study (see Appendix) stated

unanimously that the primary driver for moving to the cloud is to meet business

needs. More than the dollar savings that cloud computing brings to the table, one

of the most important intangible benefit is that the cloud enables companies to

do things they conceivably could not do in the pre-cloud era.

As an example, a company may want to test a new idea that could be a

breakthrough innovation for its business, but it requires 100 new servers to

even start the evaluation process. In the pre-cloud days, that type of expensive

constraint could result in giving up on the idea before evaluating it. But today, in

the cloud, a company just needs a credit card to get started; and testing costs are

so insignificant that they might not even need budget approval.

As the cloud enables business agility, the case for cloud computing adoption is

compelling. The ability to ramp up and ramp down computing power quickly

delivers a competitive advantage and saves money that was traditionally spent

building overcapacity.

But transitioning to the cloud involves a significant amount of business process

and culture change. What are the most important steps in achieving a successful

transition? What should a company’s cloud strategy and roadmap look like?

This paper explains eight steps for successfully transitioning to the cloud:

1. Adopt a progressive mindset

2. Watch, learn, and experiment

3. Demonstrate quick wins

4. Develop a business case

5. Understand the risks

6. Analyze the current IT portfolio

7. Create a vision of the end-state

8. Develop and execute the roadmap

8 Steps to Cloud Success: A Cloud Roadmap is the Path to Business Agility

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Step 1: Adopt a Progressive Mindset

Success in transitioning to the cloud depends on adapting to change. Thus, the

first step in a cloud computing strategy and roadmap is for the company—both

management and employees—to adopt an open, progressive mindset regarding

the application of new technologies to gain business benefits.

Transforming a company’s business using cloud solutions is not just about

technology adoption and implementation. It also involves broader business

and operational changes in several areas including governance, budgeting,

contracting, regulatory compliance, polices, people, and processes. Thus, the

move to cloud computing involves changing mindsets, cultural patterns, process

patterns, and colleagues’ hearts so that they willingly adapt to new approaches

and technologies.

Spearheading disruptive change in the organization will be the most difficult
part of the journey.

Machiavelli said this about change more than 500 years ago: “There is nothing

more difficult to take in hand, more perilous to conduct, or more uncertain in its

success, than to take the lead in the introduction of a new order of things.”

Understanding the cloud’s power and potential is certainly important; but

getting mentally ready to take the plunge can be a stumbling block. The

underlying reasons—perceived or real—are many:

• Fear of the unknown

• Fear of loss of control

• Fear of job loss

• Risk aversion

• Lack of tolerance for change

Successfully transitioning to the cloud requires a company’s top management

to drive change in order to ultimately generate value for customers and

shareholders. Management needs to educate and convincingly explain to

everyone in the company what the company is doing, why the new approaches

bring value to the company, and who will be impacted—and how—by the

change.

“Use of the cloud in our industry is an exception rather than the norm. I think a lot of

companies in more traditional, mature industries like ours are missing out on a lot of

opportunities to take advantage of what the cloud has to offer. I would encourage these

companies to be open-minded and progressive and look at alternatives to traditional,

client-server, on-premise systems.” – CEO, manufacturing company

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Step 2: Watch, Learn, and Experiment

Embracing any new technology involves learning. Sand Hill’s 2010 “Leaders

in the Cloud” research study (see Appendix A) found that companies typically

conduct experiments to see how the cloud really works and how it fits or doesn’t

fit into the requirements of the business. Through this process, companies

became familiar with constraints, issues, and benefits of the technology.

Many of Sand Hill’s surveyed executives described this testing phase as similar

to that of adopting outsourcing services: experiment with nonstrategic projects

to acclimate the company to a new way of doing business, evaluate selected

vendors, and assess business benefits. As their companies experienced the

benefits and understood the technology, their outsourcing initiatives matured

successfully and gained a significant share of projects.

Some companies also take advantage of experimenting with private clouds until

they believe public clouds become more secure. A CIO at a Fortune 500 company

participating in the Sand Hill survey on transitioning to mobility (see Appendix)

commented that they placed their catalogue of services (a store-like environment)

in the cloud so that it would scale efficiently across all modes of access. Their

initial experiment was in a private cloud while waiting for two years for the

public cloud to become more reliable.

Step 3: Demonstrate Quick Wins

Many companies participating in the Sand Hill survey set up innovation

sandboxes, referred to as Skunk Works projects, where their project teams were

allowed to work with the new cloud technology within the context of a specific

business initiative.

Here are some examples of such small, experimental projects that companies in

the study executed in the cloud:

•

Initiated development projects where small teams work on specific

business-driven projects on a public Infrastructure-as-a-Service (IaaS)

cloud such as Amazon. Examples of these projects include a short-term

marketing campaign, IT resources for offshore developers, and a new

website for photo sharing.

•

Developed a small tactical application on a Platform-as-a-Service (PaaS)

cloud such as Force.com or Windows Azure. Because the platform is so

easy to use and does not require any programming knowledge, a CIO of a

8 Steps to Cloud Success: A Cloud Roadmap is the Path to Business Agility

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manufacturing company developed a simple HR application in less than

a week. He said this would have taken several months for a professional

technical developer using traditional platforms.

•

Acquired a Software-as-a-Service (SaaS) application for a non-mission-

critical business process. An executive in a media company rolled out

a cloud-based e-mail system to hundreds of users in less than a month.

Based on high user satisfaction ratings of this new e-mail system, the

company decided to roll out the e-mail system to all of its users.

When the companies successfully completed these projects in much shorter

timeframes and with less effort than it would have normally taken, they then

pushed the results up the value chain and funded new pilot projects. The Sand

Hill study found that many companies used the cloud to solve specific and

tactical problems and, for the most part, achieved successful results.

At the next stage of getting to the cloud, however, companies need to develop

a business-case-driven cloud strategy that is fine-tuned by findings and value

gained from the tactical projects. The emphasis needs to shift at this stage from

“how” to more of “what” and “why.” Otherwise, short-term, tactical projects

will dominate the transition to a cloud-based IT reality, which won’t necessarily

generate global business value or, even worse, will end up with vendors driving

the company’s agenda.

Step 4: Develop a Business Case

Companies should consider the following fundamental business drivers when

building a business case for cloud computing:

• Business agility:

Identify how to apply cloud applications and platforms

to the business, enabling better and faster competitiveness.

• Operational excellence:

Investigate how cloud solutions can lead to

improved availability, reliability, and lower total cost of ownership (TCO),

enabling the company to invest the savings back into the business.

“I have never established a cloud computing strategy or issued a mandate that

everything needs to go off premise or move to some type of hosted model. The driver

behind it is a business need defined and executed by line-of-business stakeholders.”

– CIO, healthcare company

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Like any other emerging technology, the fundamental decision to embrace cloud

computing comes down to figuring out how the investment in the cloud will

yield positive returns to the business at an acceptable risk level. The following
CIO comment from an interview in the Sand Hill study is a good example:

If a company uses a public cloud for solving specific business problems, the

business case also becomes an outsourcing decision—one where the company

also looks for value in solutions that are safer, less expensive, and better than

what it can create by itself.

In the past few years, public cloud solutions have improved, becoming more

robust and also more compelling in quality, stability, and overall cost-to-benefit

ratio.

Many commodity services (e-mail, backup, archival, collaboration, etc.) are now

available as public cloud services. Other commodity services now available in

the cloud include the following standard business processes:

• Customer relationship management (CRM)

• Expense management

• Accounting

• HR management

• Manufacturing, wholesale, and professional services components

• ERP (especially beneficial for fast-growth companies)

For each business problem a company seeks to solve, it needs to look at a

cloud solution and compare it with alternative solutions from both return on

investment (ROI) and TCO perspectives.

Step 5: Understand the Risks

Like any new technology that offers credible business value, there are also risk

factors to consider. Risks around security, privacy, and governance are major

concerns for nearly every company. Sand Hill’s “Leaders in the Cloud” 2010

research study found a broad range of attitudes about security, privacy, and

governance.

“We have an opportunity to do 10 times greater energy efficiency inside our data center

than what we are doing today simply by adoption of the private cloud. Our goal is to

take 20 percent of data center running costs away from the fully loaded costs including

facilities, energy, hardware, software, maintenance, headcounts, consultancy. That’s

close to $200 million dollars savings for us annually and a significant chunk to take off

the bottom line.”

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Security concerns vary greatly by company—depending on the following factors:

•

Business goals and rewards

•

Perceived or real risks

•

Level of risk tolerance

•

Value and sensitivity of information assets and data

•

Regulatory concerns

Sand Hill’s survey of IT executives found large enterprises were more concerned

about data privacy, security, and governance issues than smaller companies

(see Exhibit 1). Most of the small and midsize enterprise (SME) IT leaders were

emphatic that a cloud vendor’s security processes must be superior to any that

their own company could provide. The reason: SMEs’ cost structures are such

that they cannot afford to build secure infrastructures that match those of large

enterprises or the leading cloud vendors.

Exhibit 1:

Comparison of large and small companies’

concerns about cloud computing

Source: Sand Hill Group Cloud Computing Survey 2012

“Large enterprises” refers to companies with $20 billion or more in revenue. “Small and midsize

enterprises” includes companies with less than $500 million in revenue.

Large

Enterprises

Small and

Midsize

Enterprises

Data privacy

63%

53%

38%

33%

25%

23%

15%

5%

0%

3%

46%

36%

28%

47%

25%

19%

7%

18%

11%

2%

Developers/corporate culture
Lack of practical experience with cloud computing
Migration/interoperability
Lack of standards
Regulation

No barriers
Don’t know

Lack of development and monitoring of service-level

aggreements (SLAs)

Governance (e.g., policies for control, security,

monitering and services)

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Among many examples of surveyed business executives who were pleased

with the security of their cloud vendors is the following statement from a
manufacturing company executive:

However, vendors can fail. A recent high-profile example is Amazon’s failure in

April 2011, which resulted from a configuration error. What would happen to a

customer’s data in that case? Would the provider return the data, or would it be

lost forever? The good news is that companies that properly understood their

cloud vendor’s offering made sure they included data backups and redundancies

in their applications. They also conducted due diligence to ensure they properly

understood the vendor’s offerings, service level agreements (SLAs), and

architecture. Such companies remained unscathed and ran their operations

without any interruption during the Amazon outage.

Many vendors are getting certified to security standards such as SAS 70.

However, even if a vendor is certified, the most important question to ask is:

does the certification meet your specific security requirements? As one surveyed

executive stated:

Step 6: Analyze Your Existing IT Portfolio

Another important step in the roadmap of getting to the cloud is performing an

inventory of the company’s current IT systems and developing a logical model

of the existing architecture including all relevant systems, data, applications,

processes, functional components, and services. As part of this exercise, the

company should ask the following questions and analyze the systems from these

perspectives:

“You should really ask for a security review, especially if you are a big company dealing

with a smaller company and the risk to you is greater than the risk to them in case of a

security breach. On the other hand, if you are a small or medium-sized business, your

risk is much lower if you are dealing with a well-established large cloud vendor such

as SAP, Salesforce, Amazon, or Microsoft, that is betting their business on their cloud

services.” – Principal consultant, leading security firm

“We have been using SaaS applications for more than nine years, and we haven’t had

a security breach so far. At the end of the day, we are very vigilant about security,

including strong passwords and frequent password updates; and we audit usage

patterns of our users to monitor for any untoward behavior.” – CEO, manufacturing

company

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•

What is working and what is not?

•

What is core to the business and what is not?

•

What is driving innovation and what is preventing progress?

•

Where are the cost efficiencies and inefficiencies?

•

What is driving business value and what is not?

•

How are the systems coupled and interoperating with each other?

This analysis not only provides a snapshot of the company’s current state of IT,

but also delivers crucial information to help fine-tune its business case based on

the new architecture.

Without doubt, the cloud deployment options in the architecture will drive down

cost inefficiencies and improve agility and scalability, among other benefits.

Analyzing an existing IT portfolio in this manner typically takes no longer than

four to six weeks in a midsized company.

Step 7: Create a Vision of the End-State

Once the company has a clear understanding of the current state of its IT

portfolio, the pain points, and the cost inefficiencies, it can then begin to map out

the vision of moving purposely to the end-state. That end-state description will

include the following aspects:

•

Which architectural components, data, applications, systems, services,

and processes will move to the cloud and in what order?

•

How much decoupling will be required to isolate the components?

In designing the end-state vision, the company needs a reference platform that

leverages cloud technologies for highly scalable automation, low-cost hardware,

middleware, and application servers to connect new and existing applications.

Such an analysis will consider not just the technology piece, but also the people,

process, and cost aspects including the most important areas such as budgeting,

TCO, service level agreements, governance, and compliance.

The Sand Hill study found that, even if the cost of moving to the end-state from

the current state is $5 million (for example), most small to midsize companies

will move ahead with the initiative if the end-state generates cost savings of more

than, say, $10 million per year.

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Step 8: Develop and Execute the Roadmap

After creating a vision of the end-state, the company then needs to determine

which applications and data to move when, and where, before detailing the

specifics around how to move them. It is not necessary or practical to move

everything all at once.

Create a roadmap for a long-term perspective (say, three years) and map out how

the architectural components will move over in a staged manner to a much more

effective, efficient architecture. This roadmap exercise should include a cost-and-

benefit analysis for each stage of the roadmap.

Typically, companies focus on the “low-hanging fruit” with the most business

value and place those components on the roadmap first. For example, companies

initially select a relatively less-critical application that is currently not running

cost-efficiently in-house. Moving it to an external cloud quickly will create

significant business value. As a next step, they then select the less-valuable and

more risky systems that are still worth moving, and place them at the back end of

the roadmap.

Another consideration is to review the project portfolio, and identify new and

innovative revenue-generating projects that will benefit from a faster time-to-

market advantage using cloud technologies.

For each of the identified applications, the company needs to evaluate a cloud

vendor’s offering to ensure that it meets the security, scalability, reliability, data

privacy and governance needs of the enterprise and meets established security

and compliance (SAS 70, FISMA, ISO/ IEC 27001, PCI, and HIPAA) standards.

This evaluation includes:

•

Review the vendor’s SLA provisions based on the company’s specific

business risks, risks that typically may not be covered in standard SLAs.

•

Identify changes required in the vendor’s data compliance and security

procedures (if any) to adapt to the company’s risk, compliance, and

business metrics.

•

Identify interoperability, lock-in, and compatibilities issues and determine

workarounds as applicable.

•

Carry out a hands-on product and technology validation and evaluation

against the above criteria.

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•

Assess the company’s financial stability and longevity.

•

Evaluate the company’s commitment to innovating with its customers.

•

Obtain examples of customers’ successes.

Conclusion

Transitioning to the cloud is similar to a major change initiative and needs

top management support, clear vision, and careful planning. The eight steps

presented here are sequenced in a logical order designed to yield maximum

value. Typically, the more detailed activities of later steps provide additional

information that helps companies fine-tune and refine the results of previous

steps. In this sense, this is an iterative and cyclical process that companies can

apply throughout the IT life cycle.

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APPENDIX A

Overview of Sand Hill Group Studies

The information in this paper is based on six studies conducted by Sand Hill

Group in 2010-2012, as follows:

1. “Leaders in the Cloud: Identifying the Business Value of Cloud Computing

for Customers and Vendors” (March 2010). This landmark research study

identified the business value realized by companies deploying cloud-

computing initiatives. The two-phase study design utilized 40 one-hour

interviews to uncover insights from customer and vendor experiences, and a

quantitative market survey with 511 participants provided a snapshot of cloud

initiatives and priorities at a variety of companies. The interviews and survey

questioned respondents about their current cloud initiatives, current and

planned use of specific cloud models, business benefits, organizational and

technical challenges, and details of specific use cases.

2. “Leaders in the Cloud: The Changing Tide: (March 2011). This study gauged

software vendors’ cloud outlook for the coming year and beyond. The study

utilized an online survey with 100 participants supplemented with in-depth

follow-up interviews of 10 percent of the participants to gather executives’

impressions on the direction of the cloud market, their cloud strategies, and

customer readiness for adoption.

3. “Software CEO Outlook 2010: New Decade, New Realities” (April 2010). This

study, comprised of a survey and follow-up in-depth interviews, focused

on the opinions of 107 software CEOs and CFOs regarding the changes in

software products, business models, and pricing models due to changing

customer expectations and the adoption of cloud computing.

4. “Software CEO/CFO Outlook 2011: The Gains and Pains of Growth” (April

2011). This study, comprised of a survey and follow-up in-depth interviews,

focused on the opinions of 119 surveyed software CEOs and CFOs regarding

the future state of the software industry. Questions included a focus on cloud

and mobile solutions.

5. “Leaders in Enterprise Mobile Strategies: Tug of War Between Business Value

& Risk” (November 2011). This study looked at the value-generation benefits

and the challenges of transitioning to enterprise mobility. The survey of 53

enterprise executives and an additional 20 in-depth interviews of enterprise

CIOs, CISOs, and vice presidents, uncovered mobile strategy pitfalls, best

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practices, cost analyses, and a roadmap. Study participants also provided

information about their companies’ use of cloud computing to enable their

mobile applications.

6. “Job Growth in the Forecast: How Cloud Computing is Generating New

Business Opportunities and Fueling Job Growth in the United States”

(December 2011). This research study uncovered several aspects of how

companies of all sizes are leveraging cloud computing solutions for

competitive advantages.

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Copyright 2012 Sand Hill Group

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