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Decomposing the Value Chain in the Cloud

Back when consumer USB drives were flooding the market, it was quite common to witness how people would challenge datacenter-grade storage. They would do so by comparing it with devices they could readily buy on any retail store immediately and inexpensively. By comparison, IT storage was costly and slower to deliver.

Perceptive observers could think that, either there was a scam going on… or, most probably, those two things were not exactly the same

The funny thing is that the same still (yes, still) happens with Cloud Services. Despite being around for more than a decade, people still react suggesting that “Cloud Service Providers (CSPs) are quicker and cheaper than the IT department”. There is some merit to that claim (and we will get to that in a minute). However, as with the case of consumer storage, these two are different actors doing different things in the IT Service Delivery value chain.

I know that this is a question that might be clear for some of you. But I keep seeing this way too often. The range of the confusion that I see is also quite large: from non-tech savvy people to folks that participate in the Cloud Services business to diverse degrees.

This suggests that, regardless of what somebody would think, this topic is quite sophisticated and complex for many people. Therefore, let's try to clear it up, highlight the potential differences, and explore the key implications that they represent.

The tip of the iceberg

Often times, people refer to Cloud Services that match the core of the computing stack when they make those claims about purchasing and provisioning technical components quickly and inexpensively. The context of these conversations can be shown in figures 1 and 2.

Decomposing The Value Chain In The Cloud - Figure 1
Figure 1 – Computing Stack
Decomposing The Value Chain In The Cloud - Figure 2
Figure 2 – Computing Stack and related Cloud Delivery Models

Sure, purchasing and provisioning take time in the traditional IT world and, yes, they just take minutes in the Cloud. However, these processes are just two small pieces in the IT Service Delivery value chain. For instance: somebody has to select which components must be provisioned and why; someone must integrate them, configure them and support them; some other must make sure that the solution is secure at all the stages of its life cycle; the operational model of that solution must fit in the ecosystem it belongs; medium and long term concerns also ought to be taken into consideration …

In other words, whereas the scope of the initial conversation might seem narrow and self-contained, the reality of IT Service Delivery is much more complex, as highlighted in Figure 3.

Decomposing The Value Chain In The Cloud - Figure 3
Figure 3 – IT Service Delivery Architecture

As you can see, the IT Service Delivery story is about a team effort of different functions and processes that go beyond purchasing and provisioning.

In addition, when the discussion is focused on technology, speed of development and price of specific components, a more important aspect gets abused during argumentative wars: that is “Business Value”.

The value chain

The term “Business Value” is quite overused these days. That is good since everybody is keen to showcase how their different proposals provide a positive contribution to their prospects. Nevertheless, the constant reference to it also tends to erode its actual relevance and meaning.

As hinted above, the actual value to the business comes from IT Service Delivery as a value chain and not from any of the elements that participate in it. It is a team effort, not a “solo” play. Yes, local incremental improvements have an impact on the overall process (especially when they accumulate). However, it is critical to pay attention to the whole process to make sure that those improvements do not create unexpected problems somewhere else (as it is showcased in Theory of Constraints).

Nicholas Carr in his piece “IT doesn't matter” stated that:

“as infrastructural technologies availability increases and their cost decreases – as they become ubiquitous – they become commodity inputs. They may be more essential than ever to society, but from a strategic business standpoint, they become invisible; they no longer matter”.

Since then, everybody agrees that Cloud Services are just commodities. And, when you put them in the context of the IT Service Delivery value chain, they represent a fraction of the Service Pricing scheme (as depicted in Figure 4) and, generally speaking, have a minor relative weight in the grand scheme of things.

Decomposing The Value Chain In The Cloud - Figure 4
Figure 4 – IT Service Delivery value chain

Conclusions

Now that we understand the landscape, we are in a much better position to confront the original claim: “CSPs are quicker and cheaper than the IT department”. Of course they are. But they do different things, have different missions. CSP's costs are also commodities with a minor relative weight in the IT Service Delivery value chain. In other words, in my opinion, that statement misses the whole point.

CSPs optimize provisioning and purchasing in a very immediate way, but we must remember that this just represents a local optimization of the IT Service Delivery pipeline. We can't forget that traditional approaches still respond to business needs and constraints. And, even in these cases, there are optimization strategies that can be explored too, like co-location, renting or outsourcing, to name just a few.

Cloud Service Management and Operations, practices such as ChatOps and DevSecOps, and new roles such as the SRE, leverage Cloud-based Technologies to improve other parts of that value chain. However, these are not “things” that you can buy. In fact, adopting them takes commitment, time, and effort.

This is the actual Cloud Transformation story. A story that also takes into consideration traditional environments, existing modes of operation and specific business challenges, constraints, and priorities. In this context, the perspective of an Enterprise Architecture is key: it is not Cloud Transformation, but Business Transformation that matters. Cloud Transformation is just a means to that end! The ultimate challenge is the ability of the whole organization to develop and transform its own capabilities. Because these will ultimately determine its ability to thrive in the marketplace in the medium and long term.

In summary. Now, the next time you hear “CSPs are quicker and cheaper than the IT department” … I hope, you can say to yourself: “seriously?” and, maybe, you could help by explaining why that is not the point.

Picture: “Chains” by Raul Lieberwirth. Licensed under CC BY-NC-ND 2.0

Decomposing the Value Chain in the Cloud by Carlos Veira Lorenzo is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Published in Architecture Service Management Vision