Business in The Cloud What Every Business Needs To Know About Cloud Computing

The Transition from Managing
Technology to Managing
Business Processes
T echnology does not generate revenue for most companies. Busi

ness processes powered by technology generate revent1e and profits.
The managen1ent of technology has just been a means to enable the
operation of business processes. Clot1d con1pt1ting enables compa
nies to make the shift from managing technology to managing busi
ness processes. And in the process of making that shift, companies
can reduce their fixed cost structure and redirect their money to
activities more directly related to generating revenue.
Tens of thousands of companies rely on one or more data cen
ters to power the vast majority of their technology applications and
transactions. Planning and constructing these data centers reqt1ires
a capital expenditt1re that can reach into hundreds of millions of
dollars, \.Vhich doesn't inclt1de the ongoing operating expenses re
lated to staffing, n1aint.aining, and t1pgrading them.
The \Vorld's corporations have collectively built tens of thou
sands of data centers all replicating some basic func tions, all
providing the same capabili ties, and all of them '"ith considerable
excess capacity. Numerot1s studies shO\\I that, in most con1panies,
only abot1t six percent of the total compt1ting po\ver in their
data centers is ever in t1se at any given time. 1 The rernaining addi
tional po\ver is there to handle occasional st1rges it1 dernand or
is simply there becat1se it accumulated over time and no one did
anything to stop it.
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Hugos, Michael H., and Hulitzky, Derek. Business in the Cloud : What Every Business Needs to Know about Cloud Computing. Hoboken, NJ, USA: John Wiley & Sons, 2010. ProQuest ebrary. Web. 11 February 2015.
Copyright 2010. John Wiley & Sons. All rights reserved.
102
The Transition from Managing Technology
The Fixed Cost of Maintaining Large Data Centers

Is Being Challenged
All of this duplicated processing power, like electricity, is a commod
ity, and leasing capacity from IT service providers will increasingly
become a n1ore attractive financial option to most organizations. A
group of IT vendors are no"" in the bt1siness of selling computing
po,ver, data storage, and application systerns to other companies on
a pay-as-you-go basis. They are utilities for companies that ""ant to
pay for basic IT services as they need them, rather than inct1rring
the high fixed costs of the traditional in-house IT operations model.
Ho"'r many line-of-business professionals go through an entire
day with either no IT service in terrt1ptions (or if they have any,
they file a help-desk ticket to resolve an IT issue)-all 'l>vithot1t
speaking directly to anyone in IT? IT has gotten so good at man
aging traditional IT services that for the larger business popula
tion that they can (and do) take IT for granted. IT services are
t1biquitot1s. Internet access is ubiquitous. Access to key databases
is t1biquitot1s. Access to IT support is readily available. Generally,
these ft1nctions are becoming commoditized, and the most basic
functions of IT by themselves are no longer part of the value
proposition for most companies.
What \vOtlld happen if it \vas quick and relatively easy (at least
easier than the painful and lengthy process '"e have endt1red for the
past 20 years) to develop new applicatio11 systems? 'Vhat if compa
nies didn't need to buy ne\.\7 hard,vare or ne\v packaged soft\vare,
and then consume months or years to install those systems and then
test and debug them and get them into production ? '!\That if ne"'r
systems ""ere rolled out in a fe"v weeks or months and \.vere con
stantly enhanced ,,,rith ne\v features as needs arose? Would this cre
ate a \.vhole ne\.v level of opporttinity to evolve and change yot1r
operations and products in order to keep up with the constantly
changing wants and needs of your ct1sto1ners? Ho"v long will your
company be able to survive \vithout this ability?
Today, corporate IT groups spend 70 to 80 percent of their an
nual bt1dgets on the operation and t1pkeep of data centers and stan
dard application systen1s like enterprise resource planning (ERP),
customer relationship managen1ent (CRl\1), and other commonly
packaged applications. For the most part these activities don't pro
vide 1neaningful differentiation in the marketplace, nor do they
Public, Private, and Hybrid Clouds
103
provide a competitive advantage. By using clot1d technologies to

provide more of these basic sen1ices, companies have the opportu
nity to shift more of their annt1al IT bt1dgets to spending on ne\.v
systen1s and capabilities that \viii more directly relate to the st1ccess
and growth of their bt1siness.
Cloud compt1ting gives companies a 'l>vay to both reduce costs
and i1nprove service. Cloud co1nputing is an opportunity to stan
dardize the basic computing and con1mt1nications infrastn1clure a
company employs, and this standardization offers the prospect of
getting systems bt1ilt and into production in a much more agile
manner than ever before. And tl1is agile use of IT can be a potent
factor in driving business agility. V\Then companies ca11 try out ne'"'
product ideas and explore ne\v markets 'vitl1ot1t incurring large up
front capital expenses, then many more opportt1nities open tip.

Despite the debates abot1t the exact definition of cloud con1puting,
it's generally agreed tl1at the clot1d compt1ting model has a handful
of co1nmon characte1istics:
l\1assive scalability
Provisioning of computing resot1rces on demand
A pay-as-yot1-go cost structure
Mtlltiple systems and multiple t1sers supported on the same
computing infrastn1cture
Systems and data available from anY'vhere 'l>vith Internet con
nectivity; built-in disaster recovery
Sofh.vare that's foct1sed on ease of use for the customer
Within this broad vision of cloud computing \Ve can then pro
vide three basic n1odels of clo11d computing:
1. P'ublic clouds are O\vned and operated by third parties and
located in data centers that operate ot1tside of tl1e companies
tl1at use them. Mt1ltiple companies share tl1ese resources; tl1ey
are each assigned tl1eir O\Vn virtual computing capabilities
based on a common set of physical resources. Public clouds
are pro,~ded by companies like Amazon, He\vlett-Packard,
IBlVI, Google, Microsoft, Rackspace, and Salesforce.com.
104
2. Private clouds are o'vned and operated by a company or a

cloud computing provider, but they are built for the sole t1se
of a single company. Private clouds utilize the same technol
ogy as pt1blic clouds and they are often built to enable an in
dividual company to maximize the use of its compt1ting
resources and be more responsive to company needs than
\vas possible under the traditional IT operating model.
3. Hybrid clouds are combinations of mt1ltiple clouds that are
both public and private. These clo1.1ds are created by individ
t1al ct1stomers to meet their specific needs. For example, a
con1pany n1ay decide to create a hybrid clot1d to combine a
CRlVI system provided on a public clot1d operated by Sales
Force.com \vith an ERP system rt1nning on their private
clot1d, and they may further extend this h ybrid clot1d by com
bining it with the Google clot1cl in order to provide their
employees 'vith the collaboration and prodt1ctivity tools pro
vided by Google Apps. These hybrid clouds son1etimes rely
on the services of a cloud aggregator.
Up to this point, we have focused our disct1ssion on the use
of pt1blic clo1.1ds and the business reasons for doing so. For many
start-up companies, it rnakes sense to start immediately \vi th the use
of a pt1blic cloud instead of investing preciot1s capital in building
their o'vn data centers. By doing this, they avoid the distractions of
running commodity computer hard~vare and soft,vare and are able
to concentrate on developing their t1nique value-added product
or service that \vi ll be the profit generator for the company.
But for existing companies that have already n1ade significant
investments over many years in creating and running in-hot1se sys
ten1s infrastructure, the choice of ho~v to proceed \vith the use of
cloud technolog)' is not as clear. They can consider the choices
of creating private clot1ds or deploying hybrid clot1ds.
Private Clouds
Nlany indt1stry analysts believe that private clouds (as opposed to

pt1blic clot1ds) \vill remain attractive to in-house IT grotips for the
foreseeable ft1tt1re since they can offset concerns about governance,
data sectirity, and perforn1ance management. 2 Private clot1ds also
offer large companies an inviting \-Vay to consolidate data centers,
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ct1t technical support and operations staff, and increase server utili
zation. Typical server tttilization inside corporate data centers
ranges from as lO\\I' as 2 percent t1p to around 10 percent. Imple
menting a private cloud can raise those levels to 60 or 70 percent
and save the company from pt1rchasing a lot of additional servers. 3
In addition, private clouds don't need to be qt1ite as automated
and self-serve as public clouds in order for then1 to still deliver valt1e
\vith increased server u tilization and faster user provisioning. In
stead of using online web request forms to provisio11 compt1ting ser
vices for a ne\v application system, employees cot1ld jt1st send an
email to their IT provisioning group \\l'ith the reqt1est. The in-hot1se
IT group could get it done and email the requester bacl< in a fe\.v
hot1rs with the confirmation and information they need to start
t1sing the ne\.vly provisioned system.
Larger companies enjoy economies of scale in IT operations
and, in some cases, can provide IaaS (infrustructt1re-as-a-service)
and PaaS (platform-as-a-service) less expensively than services from
outside cloud providers. For certain categories of sen1ices, private
clouds can make good business sense.
Private clouds may not need to run entirely on t1niform hard
\vare in the same \vay public clouds do. For instance, IBl\II has expe
rience bt1ilding private clouds that use products like Tivoli on its
mainframes, 'l\Tindo,.vs and Linux on its sen1ers, and 'l\Tebsphere
transaction management and SOA (service-oriented architecture)
as \vell as MQ Series for n1essage sharing among these different plat
forms. By configt1ring this \vay, they are able to create fit-for-pt1rpose
clot1ds and increase the utilization of each platform .
Based on the specific circt1mstances and business conditions for
a partict1lar con1pany, b11ilding a private cloud in the typical corpo
rate heterogeneous environment offers advantages including:
Enabling IT organizations to leverage existing infrastructure
and get cost-effective use of their previous IT investments.
Placi11g cloud computing inside the corporate data center to
eliminate n1any of the iss11es that accompany the t1se of pt1blic
clouds like data security; performance management and SLAs;
and concerns abot1t reg11latory compliance.
Private clouds also have the potential of lower cost of use,
since they don 't have a profit n1argin added onto their services
(as is the case \.vith pt1blic clouds) .
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Until companies are familiar "''ith this ne\v operating model,

some may feel that external cloud environments have too many
unknowns and too mt1ch risk. In building their private clot1ds, com
panies can gradt1ally invest in their private cloud as the first step 011
a journey to get more comfortable "vi th a cloud operating model.
Private clouds are a good \vay to test matt1rity and reliability of the
technolog)'. Co1npanies can develop trust in the technolog)' and the
pt1bic clot1d providers they do \vork with on a limited scale, and they
can learn to deal \.Vi th different regtdatory, data control, and sect1rity
.
issues.
Then, over time the in-house private clot1d verst1s pttblic clot1cl
n1ix can evolve from 90-10 to a 50-50 mix or even a 20-80 mix.
That said, large companies may not get to an all-or-nothing, public
verst1s-private cloud model any time soon.
Hybrid Clouds
A company may create a private cloud to share IT resources across

multiple applications and to increase t1tilization of the servers in
their data center. Suppose that company starts to experience a st1rge
in t1ser demand for one of their applications. By using a hybrid
cloud, they can quickly and cost effectively expand the capacity of
the servers in their private cloud. They can draw upon the po,ver of
a public cloud to handle the increasecl t1ser demand and maintain
good system service levels for the people using it.
To create a hybrid cloud, companies need to put the infra
structt1re in place that ,.,rill allo\v them to integrate pt1blic clouds
with their private clouds \vhile still maintaining sect1rity and per
formance management capabilities. IT vendor companies (like
Cisco, Itricity, Juniper Nenvorks, and Nimsoft) are making the tech
nology that allows companies to do this. This is the underlying infra
structure companies need for hybrid clot1ds.
Integration of clot1d applications and in-house systems requires
an effective method for maintaining sect1rity, for rnonitoring per
formance, and for passing data back and forth benveen the clot1d
and the in-hot1se systems. Perimeter security in hybrid clot1ds can
be provided by a nt1n1ber of methods like data encryption and vir
tt1al private networks. Many in-house IT groups are already familiar
\vith the use of this technology.
Issues to Consider with Private Clouds
107
l\ilost cloud vendors provide robust tools to help manage system

performance in the cloud. This is the business they are in so they
invest heavily in performance monitoring and reporting capabilities
that are often superior to what companies have in-house. Once in
place, this infrastrt1cture becomes the base for ne\v business models.
It allows rapid expansion and contraction of compt1ting po\.Yer as
business needs change, and it also provides the secu1ity, perform
ance management, and regt1latory cornpliance neecied to operate
hybrid clouds.
Clot1d applications are by their nature relatively easy to integrate
\.\Tith other systems becat1se they are bt1ilt with \veil-defined applica
tion interfaces known as application programming interfaces
(APis). Compared \.Vi th the task of integrating different in-house
applications, integrating clot1d applications "'rith in-hot1se applica
tions is often easier because the APis of clot1d applications make it
easier to import a11d export data and pass that data back and forth
bet\.Yeen the cloud and in-house systems.
Issues to Consider with Private Clouds

Private clot1ds encounter all the same issues associated \vith public
clot1ds and they require significant tip-front capital investment.
They have the same problems with monitoring and managing per
formance. They have the same problems \.vith the risk of vendor
lock-in (particularly with respect to the virtualization technology
used) 4 and the question of \vhether that vendor \.viii keep up "'rith
the pace of technology cbange in the marketplace.
Private clouds present a significant challenge for internal IT
grot1ps because they often have not dealt "'rith the reqt1ired busi
ness process reengineering steps and processes. ITIL (informa
tion technology infrastructure library) is a popular set of best
practices that are "'ridely usecl to run the in-house data centers of
individual companies. In tt1rn, ITIL practices are going to clash
ivith cloud practices because ITIL is very manually intensive and
clouds, by d efi11ition, must be highly automated i11 order to
achieve the levels of user self-service and the rapid infrastrt1ctt1re
provisioning required for n1eeting user service requests.
At present there are relatively fe\v in-house IT grot1ps that ca11
match the operating discipline, the at1tomation, and the resultant
108
efficiencies of the big cloud data centers operated b)' providers like
Amazon, Google, IBN1, l\1icrosoft, and Rackspace. Clo11d vendors
invest in their infrastruct11re and in automatecl systems administra
tion capabilities in order to achieve great economies of scale and
operating efficiency. Conversely, in-house IT gro11ps are ahvays
being sq11eezed to save money and to c11t their operations b11dgers
so they are challenged to create the econon1ies of scale that public
cloud vendors can achieve.
As Irving Wlada,"1sky-Berger puts it, most company data centers
are a hodge-podge of different technology reflecting the compan)''S
history \Vi th different vendors and its mergers and acqttisitions. 5 He
points out that they look like what most factories looked like before
the advent of lean manttfacturing practices. The engineering disci
plines promoted by lean manufact11ring and implemented by the
Japanese and Germans have set a standard that every other manu
fact11ring company needs to match if they '\1ant to achieve ,,vorld
class prod11ctivity and cost efficiency levels. Companies need to
adopt sin1ilar practices and discipline '"'ith the equipment, layo11t,
and operation of their data centers.
Public cloud vendors are bringing this same discipline to bear
on the ir cloud data centers. The public cloud vendors have imple
mented a ne'" world-class level of practices and use of equipment
that in-ho11se IT gro11ps m11st also adopt if they \Vant to achieve the
san1e level of productivit)' and efficiency.
Based on his experience over the last couple of years, senior
enterprise architect Rick Pittard p11ts it this '"'ay; he says, "Size of
data centers is important but may not be as central to gaining
economies of scale as having a sta.ndardized hard,V'are and operating
system environment. Size and standardization are both necessary to
get real economies of scale. If yo11 have size, it can red11ce cost if you
also have standardization, but 'vithout standardization, size alone
will not red11ce your costs. v\7itho11t standards, the diversity of hard
\vare makes it very hard to move into a cloud environment."6
Cloud computing by its nature requires a lot of innovation. It
demands steady innovation to make it 'vork and to make it easy to
11se by a mass consumer market. Public cloud vendors in the bt1si
ness-to-consumer 'vorld have innovated rapidly and done so over
the last several years in spite of our difficult economic situation. At
the san1e time, \\1here in the corporate IT '\1orld has so n1uch
changed in so short a time? The innovation cycles of public clo11d
The Cloud Is a Plattorm for Managing Business Processes
109
vendors are t1sually mt1ch shorter than most corporate IT life cycles;
most companies 'vork on five to six year life cycles or longer. It will
be a challenge for corporate IT environments to keep up 'vith the
pace of change initiated by public cloud vendors.
The rapid innovation cycles of public cloud providers like
Google and Amazon are driven by real-time customer feedback
loops . That customer feedback drives their innovation in a much
more effective manner than the feed back that drives traditional IT
vendors and in-house IT groups largely because the central business
of cloud service providers is to make money b)' responding quick!)'
to customer needs. In-house IT grot1ps don't have that same,
dynamic incentive and are not seer1 as profit centers in their con1pa
nies so they do not have access to the same levels of investment to
improve their service offerings.
Private clot1ds, if not used carefully, can defeat the central pur
pose and the value proposition that clot1ds provide to companies
because 'vith private clouds, companies still have the distraction of
bt1ying servers, building d ata centers, operating them, and so on.
In-hot1se IT staff is still focused on running existing technology and
systems instead of figuring out 'vhat ne'v tools and infrastructure the
company needs.
The Cloud Is a Platform for Managing

Business Processes
In our real-time, global econotn)' 'vhere product life cycles are short,
companies need to be good at bringing new prodt1cts to market and
tailoring exisrjng products to keep up 'vi th shifting ct1stomer prefer
ences. In their ongoing search for ne"" products and ne\v markets,
companies e ngage in growth by expansion of existing business units
and by mergers and acqt1isitions of other companies. Business pro
cesses need to be flexible to accommodate these activities.
The value proposition delivered by most companies (unless they
are thernselves cloud service providers) lies in the 'vay they manage
their business processes, not their technolog)'. It lies in the \vay they
tailor their processes to meet constan tly changing market condi
tions. Technology is a means to this end, but technology is not an
end in itself.
Although the cloud is certainly a platform for managing the de
liver)' of computing services, that vie"" is more from the traditional
110
technolog1-orien ted perspective. Another way to look at the cloud is

from the business perspective of con1panies that t1se the cloud to
support their operations. From their point of view, the greatest ben
efit they can gain from the cloud comes not from cost savings ir1
technology, but from the revenue they earn by being more respon
sive to changing customer needs, the revent1e they generate ' "'ith
faster roll out of ne\.v prodttcts and services, and st1ccessftli expan
sion intone'"' markets.
In addition, it's important to remember that companies are
much less self-contained and mt1ch less vertically integrated than
they \.vere 20 years ago. Con1panies have been steadily outsourcing
noncore activities so that they can concentrate their time ancl
money on conducting the value-added activities that create the
product or service their ct1stomers bt1y from them. As a conse
quence, most companies are dependent on a network of st1ppliers
that provide support services. And for companies to rnanage their
business processes effectively, they need to find '"'ays to effectively
collaborate with their supplier partners. Figure 6.1 illustrates these
interconnections that are no""' the norm for most companies.
The clot1d is not so mt1ch abot1t ne'"' technology as it is abot1t
ne'"' bttsiness models. The bt1siness model in Figt1re 6.1 sho,.vs ho""
companies are evolving a\\l'ay from self-contained organizations that
perform all their core ancl st1pport activities internally. Companies
Company outsources
support f unctions to
alliance partners.
Alliance
Partner
'A"
Customer
,
--- ----------Company
\
Alliance
Partner
'-.,...----./
Support
Support
Core
Customer
Core
_______ ,,.
Alliance partners
provide tailored
bundle of products
and services.
Company
focuses on
core functions
that create
unique value
add for tts
customers.
~----
Customer
Alllance
Partner
Figure 6.1 Companies Are Dependent on an Ecosystem of Suppliers

and Customers
The Cloud Is a Plattorm for Managing Business Processes
111
are no\v becoming enn1eshed in networks of st1ppliers and custom

ers. To paraphrase a famous saying, no company is an islancl. No
co1npany can st1cceed all by itself. Companies depend more than
ever on effective collaboration 'vi th their supplier partners. Business
services need to be delivered in a reliable and predictable fashion,
and it is the flo\v of information back and forth behveen companies
through the clot1d that 1nakes this possible.
The cloud is an ideal environment for companies to bt1ild and
deliver an inventory of bt1siness services targeted to individt1al mar
ket segments and specific customers. Bt1siness process manage
ment (BP"tl1) is the foundation for offering bt1siness services over
the cloud. Using BPM, companies 'vorking together can assemble
an appropriate bundle of business services needed to best serve
certain ki11ds of customers. BPwf systems can then monitor per
formance of these intercompany services and provide all parties
\.vith the real-time reporting and transparency they need so as to
continually adjt1st the business processes that deliver these services
as conditions change.
BP"tl1 systems tap into and monitor the data that flo"vs bet,veen
the transaction processing systems used by co1npanies. For instance,
consider a business process that involves receiving orders, that then
routes the orders for fulfilln1ent, ships the ordered products, and
then bills the ct1stomer. There are several transaction processing
systems involved: a \.Veb-based product catalog and order-entry
system; ar1 order-rot1ting system; an order-ftllfilln1ent systen1; a
billing system; and an accounts receivable system. To really under
stand what is happening in the process, and to optimize the whole
process of taking orders and serving the ct1sto1ner, you need to see
and understand how all these systems 'vork together. A BPM system
can reveal a unified, big-picture vie'v of the data flo\ving bet\.veen
these systems, and it can spot bottlenecks ,.vhere data flo\v slo\vs
do,vn or \Vhere problems develop that place a drag on efficiency
throughout the '\.vhole process.
A recent report from Gartner states, "By 2013 dynamic BP"tl1 \Vilt
be an imperative for companies seeking process efficiencies in in
creasingly chaotic environments. " 7 It also says that more and more
ct1stomer-facing processes "''rill be configurecl based on specific
kno\.vledge abo11t the customer, and suppliers \.Vill t1se BPM to tailor
their processes on a just-in-time basis to meet the evolving needs
of customers.
112
In other ""ords, BPM systems deployed in a clo11d environment

then become the method companies \.viii '"ork together in value
chains to deliver a constantly changing mix of responsive products
and services to their customers. As a rest1lt, clo11d-based BPM then
becomes the basis for effective, cross-compan)' collaboration to
deliver personalized and specialized processes that s11pport indi
vid11al custon1ers.
BPl\11 and SOA are ~vo different sides of the same coin . BPM is
the bt1siness vie\v and SOA is the technology vie\v. BP~1 allows com
panies to moclel their business processes, and then combine and
streamline them. SOA allO\\IS companies to reuse soft\\lare assets ancl
cost-effectively create systems to s11pport redesigned business pro
cess flo,vs. Companies can 11se SOA or WOA ("veb-oriented architec
ture) to in tegrate across different clo11ds and integrate cloud
applications \.vi th internal company systems.
BPl\11 allo\.vs companies to break their business processes into
collections of interconnected tasks. This is an important step in ena
bling them to extend their operations beyond their o\vn company
bo11ndaries to embrace services provided over the cloud. In this
way, they can outsot1rce certain processes ancl tasks so that they can
concentrate on their core value-added processes, continue to im
prove then1, and invent ne\v ones.
In a \.Vorld \.vhere prod11cts and services quickly become con1modities and \.vhere profit 1nargins are constantly being sq11eezed
as a res11lt, it's the ability to continuously tailor these products
and services that '"ill earn companies an additional profit margin
on top of the diminishing margins offered by those other,\lise
commodity products.
The driving force of the responsive econom)' in this century is
coming from unleashed innovation through cloud services that
are quickly becoming available all over the ""orld. Scientists can
collaborate on health and environmental problen1s; businesses
can cooperate to deliver tailored prod11cts and services \\IOrld\vide;
and in these business net\vorks, companies can focus on doing
what they do best and rely on other companies to perform the
complementary tasks that are a part of delivering the finished
product to the end-user c11stomer.
It is in this agile process of continuous response to changing
customer needs that most co1npanies "''ill differentiate themselves
and find most of their profit opportunities. These profits are the
Automate Routine Processes and Focus People
113
"agility dividend." Real-time, global markets are continuously ad

justing the price of commodit')' products to their cost of production
just as real-time stock markets continually adjt1st the price of stocks.
So the agility dividend is \Vhere n1ost companies \vill find their best
opportt1nities to generate profitable revent1e over and above the
prices set by global markets.
Automate Routine Processes and Focus People

on Handling Exceptions
Companies are like fish swimming in oceans of data. There is jttst
not enough time or budget for all those people to handle or revie\v
standard information recorded as predictable, expected operations
taking place in a company. Routine, standard data, and procedttres
for handling it, must be driven by automated transaction systems
that st1pport the con1pany's standard operating procedt1res. Com
pt1ters handle rot1tine situations mt1ch better than humans because
they never get bored by the routine, and they scale up quickly as
transaction volumes increase.
People in a responsive organization need to devote their ti1ne to
handling nonstandard data. Nonstandard data is any kind of data
that is different from '"hat is expected: data that, for any reason,
does not conform to the rules built into automated transaction sys
tems or the performance parameters built into performance moni
toring systems. v\Then a company's systems encounter this kind of
data, people quickly get involved. The greatest opportunities for
any organization are in the \vay they detect and respond to un
expected problems, threat5, or opportunities.
Use co1nputers to do \vhat they do best. Let them handle the
day-in, day-out n1oving of rot1tine data on basic transactions like
purchase orders, invoices, accot1nt balances, order status, address
changes, and so on. Wherever there are people doing routine data
entry or repetitiot1s \VOrk of any sort, this is an opportunity to auto
mate. Computers do this sort of work much better, faster, and
cheaper than people.
Use people to do \Vhat they do best. 'Vhat they do best is think
ing, communicating-, and problem solving. We don't need to build
excessive amounts of complexity and cost into new con1puter sys
tems if v.re free people up from rot1tine \Vork, then give them the
data and training they need to solve complex problems and the
114
ability to handle the exceptions discovered by compt1ters through

automated, routine operations. 'Ve clon't need artificial intelligence
in ot1r systems when \.Ve can apply the real intelligence of people
\Vho are trained, motivated, and empowered.
tv1ost business operations are rot1tine ancl repetitive ""ork that
can be handled '"'ith relatively simple sets of processing rules that
can be applied to business processes \.\rith BPM systems. The BPl\1
systems can be used to move and monitor data benveen different
systems and different companies. They monitor the processes they
st1pport and "vhen they detect a problem or a slo'"' do'l>vn, they send
alerts to people assigned to handle those issues. 'A/henever a transac
tion happens that doesn't folio"" one of the simple routine process
ing rules, the BPl\11 system traps the data relatecl to that transaction
and notifies a q11alified person.
People "'rill either be able to conect the clata so that it fits back
into a si1nple predefined process, or they '"'ill take care of the trans
actions themselves all the '"'ay through. They 'viii have adequate
time to do this since they "'1on 't be bogged do,vn or \vom ot1t doing
the routine '"'ork the compt1ters handle. And this is where they can
generate tl1e most value for customers and for the company; this is
the agility dividend.
And people \viii do a great job on these tasks. Since they are
nonrot1tine, they are interesting. They involve thinking, communi
cating \.Vith others, and problem solving. People like this kind of
\vork. It's fun . The human brain is more fine-tt1ned and able tha11
any computer to do this kind of work.
By at1tomating the mass of rote, rot1tine, and repetitious ""ork,
your organization '"ill find great cost efficiencies. By empo'"'ering
people to handle the nonroutine tasks, companies \Viii become
very responsive to unique ct1stomer needs. It is this blend of effi
ciency and responsiveness that \Viii enable a company to out
perform its con1petition .
Cost savings happen when companies act in a coordinated man
ner to contint1ally optimize their common and individt1al business
processes, and then regularly adjust them to changing business
conditions. These adjustments are made in response to changes in
the cost of labor and ra\.v materials as 'veil as to supply and demancl
for a company's products and sen1ices.
Profits are generated by continuous tailoring of products and
senrices to changing customer needs and desires. Products that are
Four Technologies that Enable Responsive Business Processes
115
tailored to meet demanding customer service reqt1irements are

"\>VOrth more than the commodity versions of those prodt1cts. This
tailoring results in sales revent1e that is slightJy higher than the
market average becat1se customers are \'\Tilling to pay a fe,v percent
more to get those tailored products.
Four Technologies that Enable Responsive

Business Processes
There are four application technologies that companies can use in
various combinations to be responsive to changing conditions and
emerging threats and opportunities. They are:
1. Business process management (BPM)
2. Complex event processing (CEP)

3. Business in telligence (BI)
4. Simulatio11 modeling
BPM is a '"ay for companies to observe productivity in their op
erations and carry out a continuot1s, incrernental process of improv
ing operational performance. A company starts by mapping ot1t its
key processes and defines the steps or '"ork tasks in each process.
Then it uses BPM soft\vare to collect and display a contint1ot1s
stream of data that sho,.,rs the movement of transactions through
each step. The BPM soft\~1 are can be used to at1tomate many of the
routine tasks, such as n1oving different kinds of data from one task
to another. It can also be set to detect certain error conditions and
send at1tomatic alerts to people ""ho need to respond to these con
ditions quickly.
CEP complements the capabilities of BP11 systems. A CEP sys
tem can monitor multiple data streams and can conduct real-time
comparisons of data in these streams that predefined patterns indi
cating the occurrence of certain events that create problems or
opportunities. Companies can define specific event patterns that
then trigger the system to make certain responses. Some events may
t1igger the system to set in motion a set of online calculations and
responses that react to those events. Other events may trigger the
systen1 to send alerts to people. For instance, a CEP system used by
an airline might detect that a particular airplane is at a departure
airport and that a large storm is heading to that geography. It also
116
detects the boarding gate at the arrival airport reserved for that air
plane. In these data streams, the system can be instructed to auto
matically detect that the airplane's deparn1re will be delayed by the
approaching storm and that the time slot reserved for the boarding
gate at the arrival airport requires change. The systen1 can be
instructed to make the change itself, or it can send an alert to airline
staff so they can respond appropriately.
BI systems collect, store, and analyze data and allow people to
orient themselves to patterns and decide on actio11s to take. These
systems collect data from many different sources. Data can be
collected from sensors and radio-frequency identification (RFID)
devices. Data can be collected by BPM systems or data can be
obtained from the many transaction processing systems in a com
pany like ERP, order entry, or CRM. Once the data is collected, it
is stored in a database where people then access it as needed. Often
the database is updated \Vith ne\v data on a continuot1s or "real
tin1e" basis, and st1mmary displays of relevant data are available to
people through \veb-based dashboards.
When people then access the data, they use BI software tools
that help them analyze the information ancl display the results. BI
soft\.vare tools run the gan1ut from sin1ple spreadsheets and charts
to con1plex multivariable regression analysis and linear program
ming. The proper mix of BI tools is determined by the needs of the
people in a particular bt1siness setting, and their skill and training
levels. The combination ofBPM, CEP, and BI systems is sometimes
referred to as enterprise performance management (EPM) .
Simtllation 1nodeling is an emerging soft\vare category. Today,
companies need to make important decisions more frequently, ancl
these decisions have significant conseqt1ences on company opera
tions and profitabilily. As \veil, they need to make decisions about
ho\v to operate in conditions they've sometimes never encountered.
Simulation modeling provides a \ay to deal \\Tith this kind of rapicl
and business-critical decision maki11g.
Simulation modeling sofnvare allo\vs people to create models of
scenarios like a factory or a supply chain net\vork or a vehicle deliv
ery route. They can then subject the models to different inputs and
sin1ations and observe what happens. A design that may see1n good
on paper could very \veil create problen1s that aren't apparent un ti!
the design is modeled and its performance is simt1lated t1nder a
broad range of conditions. It is mt1ch fas ter and cheaper to discover
Notes
117
problems throt1gh simulations than to find out the hard '"'ay after
much time and capital are invested.
Existing transaction systems, like ERP, order management,
accot1nting, ir1ventory management, delivery scheduling, factory
control, and maintenance systems, provide a steady stream of
data that reflects individt1al processes in a company or bet\veen
groups of companies. This data can be monitored throt1gh the
t1se of BPM and CEP systems to provicie a comprehensive end-to
end picture of the productivity and performance levels in these
operating processes. BPl\1 systems can t1pdate this pictt1re on a
real-time or near-real-time basis and reveal bottlenecks and dis
ruptions that require attention .
Once people have identified the snags, they can then make use
of BI databases and analytics sofNvare to investigate the problems
and identify their root ca11ses. When these are revealed, people can
desig11 appropriate '~'ays to address them. Then, by using simulation
systen1s, they can model potential process changes and see the prob
able impact of each different change. In this \Vay, people are then
able to select the most effective changes and implement them \-vith
confidence that they \Viii deliver the desired results.
The po,ver of these fo11r technologies is multiplied \vhen they
are used together and on a universally accessible platform like the
cloud, largely because they enable more effective and timely collab
oration an1ong companies \vorking together. '.\Then these technolo
gies run in the cloud, people in all participating companies can see
data and the status of operating processes in real time. This trans
parency enab1es effective and timely brainstorming as \Veil as prob
lem solving. In this environment, companies have the opportunity
to collaborate and design extraordinarily responsive business pro
cesses to drive their operations and that enable them to contint1011sly and instantly adj11st ilieir operations to charigirig arul
unpredictable circu11istances.
Notes
1. Lud\vig Siegele, "v\There the Cloud l\1eets the Ground," The Econo1nist, Oc
tober 23, 2008.
2. Mark Everett Hall, "Pioneers of the Private Cloud," Co1njntt111w(Jrld, Decem
ber 21, 2009, \\l\V\V.co1nputerworld.co1n/ s/ article/ 345397 / Pioneers_of_the_
Piivate_Cloud.
3. Ibid.
118
4. Bernard Golden, "The Case against Private Clouds," CIO.co1n, J une 4, 2009,
" 'W\V .cio.con1/ article/ 494249/ The_Case_Agai nst_Private_Clouds.
5. Irving \"'1ada,vsky-Berge r, So1ners, NY, co1n1nent~ 1nade in personal intervie\V
\vith autJ1ors (Dece1nber 16, 2009).
6. Rick Pittard, Chicago, com1nent.s 1nade in teleph one intervie\V\Vit.h authors
(February 10, 2010) .
7. Gartner, "Five Business Process Nlanagement Predictions for 2010 and
Beyond," Gartner.coin, January 13, 2010, '"'"' v.gartner.com/it/ pageJsp?
id=l278415.

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The Transition from Managing

T echnology does not generate revenue for most companies. Busi

The Transition from Managing Technology

The Fixed Cost of Maintaining Large Data Centers

Public, Private, and Hybrid Clouds

provide a competitive advantage. By using clot1d technologies to

Public, Private, and Hybrid Clouds

The Transition from Managing Technology

2. Private clouds are o'vned and operated by a company or a

Nlany indt1stry analysts believe that private clouds (as opposed to

Public, Private, and Hybrid Clouds

The Transition from Managing Technology

Until companies are familiar "''ith this ne\v operating model,

A company may create a private cloud to share IT resources across

Issues to Consider with Private Clouds

l\ilost cloud vendors provide robust tools to help manage system

Issues to Consider with Private Clouds

The Transition from Managing Technology

The Cloud Is a Plattorm for Managing Business Processes

The Cloud Is a Platform for Managing

The Transition from Managing Technology

technolog1-orien ted perspective. Another way to look at the cloud is

Figure 6.1 Companies Are Dependent on an Ecosystem of Suppliers

The Cloud Is a Plattorm for Managing Business Processes

are no\v becoming enn1eshed in networks of st1ppliers and custom

The Transition from Managing Technology

In other ""ords, BPM systems deployed in a clo11d environment

Automate Routine Processes and Focus People

"agility dividend." Real-time, global markets are continuously ad

Automate Routine Processes and Focus People

The Transition from Managing Technology

ability to handle the exceptions discovered by compt1ters through

Four Technologies that Enable Responsive Business Processes

tailored to meet demanding customer service reqt1irements are

Four Technologies that Enable Responsive

2. Complex event processing (CEP)

The Transition from Managing Technology

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