The transformation away from capital assets gives businesses the freedom to compete through innovation
Although I’ve refused to get into the “what is cloud computing” argument over the years, it doesn’t mean I don’t have a very specific definition. I believe down at the very core of cloud computing sits an airtight, inviolable principle: A cloud enables the buyer to forgo asset ownership.
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Through my years of consulting I have come to the conclusion that technology asset ownership is an addiction and one that must be overcome through willpower, a support network and a change in habit. I’ve had to commiserate too often with CIOs despondent over the failure of private clouds that don’t meet their goals to remain silent. The best way to illustrate my point is to consider the approaches of my fictional, but all too real, clients: Accumulation, Inc. and Leverage Enterprises.
Accumulation, Inc.
Accumulation, Inc. has a new idea that they encapsulate in a mobile app and new process on their website. Excited by the results of the proof of concept and potential market size, the business gives the green light and puts their faith in the hands of IT.
At some point during the design phase an executive asks, “Can we do this on existing hardware?” Round after round of discussions ensue until the enterprise and software architects are browbeaten into accepting a sub-optimal infrastructure design because it’s “standard,” maximizes IT’s return on assets (ROA) and is the “low-risk” option. After all, Accumulation, Inc. executives have a fiscal responsibility to drive ROA and manage risk.
Unfortunately, when the market dries up and sales drop, the costs are fixed and threaten to push the business into the red. Excessive costs accumulate until the solution is finally resized with excess assets decommissioned after paying penalties for early lease termination.
Leverage Enterprises
A strong competitor in the market, Leverage Enterprises has the same idea and also translates it into a mobile app and new website process. With similar proof of concept results, they too rush toward production.
Unlike Accumulation, during the infrastructure design, nobody asks a single question related to existing hardware assets. Not one. Since assets are paid for based on consumption, there is no available overhead to accommodate new functionality. Where existing functionality is to be reused, they dial up additional capacity. Where new functionality is built, they provision new capacity. With no assets, there is no need to feed the ROA monster. And when the market slows down the following year, Leverage simply scales back their provisioned environments to match demand.
In my experience, most people focus on the answer to the question “Can we do this on existing hardware?” I argue the problem is the very question itself. It’s a deceitfully simple question that belies its importance. Unfortunately, by the time the question is asked, the strategic answer is cast in stone: Yes, you have inherited a past into which every mistake and shortsighted decision is firmly ensconced.
In contrast, those who leverage other people’s assets through cloud computing take advantage of the collective thinking and advancement of a massive ecosystem, one in which innovations occur daily. The power of this agile, efficient, elastic platform resonates throughout a company because it lowers both the cost and risk of experimentation. In fact, it’s the secret sauce of Silicon Valley disruptors who recognized long ago the mismatch between asset and innovation lifetimes.
By factoring technology risk and cost out of the equation, the business is free to focus on creative destruction, finding new ways to solve problems. It’s a straight line from how IT views assets to its ability to foster innovation. While freedom from assets fans the flame of innovation, asset accumulation threatens to smother the spark of ingenuity when it’s still just a flicker.
