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Four Key CIO Challenges in the Transition to the Cloud

By April 14, 2010Article

As enterprises transition to the cloud, taking advantage of new capabilities, new technologies and new economics, CIOs are faced with the daunting task of deciding what, when and how to invest in the cloud and how to transform not only their systems portfolios, but their organizations and business processes. Saugatuck Technology research clearly shows that cloud transitions typically impact the IT organization in very significant ways, affecting roles and responsibilities, organizational structure, governance, architecture, budget process, employee retention, asset management and customer relationships.
The shift in acquisition of business and IT resources from on-premise licensed software solutions to Software-as-a-Service (SaaS) and from on-premise data center infrastructure to public and private cloud deployment continues to transform the information technology sector. In this article, we present an overview of the four key challenges we have seen CIOs handle as enterprises transition to the cloud.

  1. Identifying opportunities Over the past decade, much of the SaaS and cloud technology buying has been one-off and reactive, focused on point solutions – across the vast majority of IT shops. While the initial impact of the Cloud has been primarily economic – better, faster, cheaper – we now are beginning to see the transformative effects of cloud technology on businesses. As enterprises evolve their IT investment toward the new opportunities presented by the cloud, the business solutions portfolio will more frequently be assessed proactively rather than reactively, and in collaboration between the CIO and the business unit heads, cutting across all business processes and functions. The evaluation and assessment of business processes, both inward- and outward-facing, will increasingly be conducted in conjunction with the planning and development of the business solutions portfolio and the cloud strategy.The key to identifying cloud opportunities lies in understanding how and where cloud IT fits with established business and IT operations – creating leverage, innovation, and synergy. New business opportunities can also be identified by recognizing how cloud-specific value is realized. Geographic reach and the ability to coordinate, both synchronously and asynchronously, across organizational boundaries can yield transformative effects.The use of mobile devices to access information in the cloud, to share that information with co-workers, to launch business transactions and control on-premise assets remotely through the Cloud brings still another dimension to how businesses may now operate.The CIO’s role in assessing the IT portfolio, his or her IT organizational and financial resources, and the evolving business strategy begins with platforms and technologies that can enable hybrid architecture. Success in the cloud transition will require creating manageable projects that, like jigsaw puzzle pieces, exploit opportunities, yield tactical benefits and bring the longer-term strategic vision into view. To accomplish this end will also require that the CIO become fully aware of how the cloud can transform business and IT processes and the relative capabilities and limitations of the cloud providers of IaaS, PaaS and SaaS solutions via public and private clouds, as these continue to evolve, deepen and mature.
  1. Assessing ROI/benefitsIn identifying cloud opportunities, and the relative tactical and strategic advantages among them, the CIO will be best served by formalizing how the return on investment (ROI), the total cost of ownership (TCO) and other cost-benefit measures will be assessed, weighing those quantifiable returns against internal political reality and the other qualifying factors such as agility, manageable service levels, regulatory compliance, and risk.For example, even if operational costs are projected to be flat or increase slightly, moving to the cloud could yield very positive results, regardless of how internal financial metrics portray the opportunity.The business model and the relative intensiveness of technology utilization, the appetite for risk, and the technology maturity of the IT organization will dictate how aggressively the CIO can pursue the Cloud transition.It is important for the CIO to understand the difference between sufficiently mature Cloud solutions and those that are still experimental or experiential. For instance, while virtualization technologies offer clearly presentable ROI, the opportunity of internal/private clouds or Platform-as-a-Service (PaaS) may be appealing to IT organizations that have the patience, the resources and the resilience to absorb the challenges and setbacks and the potential for outright failure that immature technologies can present.More conservative CIOs may choose to implement only those Cloud solutions, such as SaaS, that promise clear economic benefit in comparison with on-premise solutions, yielding accelerated payback through more rapid and less costly implementation, avoidance of capital investment and reduced IT personnel expense. However, as discussed above, some Cloud IT business solutions can offer transformative value through innovation, leverage and synergy with existing on-premise solutions as the hybrid IT portfolio evolves.
  2. Acquiring cloud solutions Transitioning to the cloud provides CIOs and their business unit partners with the opportunity to rethink business processes and workflows in new and creative ways. The CIO is usually in the ideal position to review the overall applications portfolio with the business team and determine whether to augment, migrate or replace an on-premise application or technology platform with cloud solutions capability.Early discussions that we have had with progressive CIOs who are further down this path suggest that anywhere from 10 percent to 40 percent of existing custom-built application portfolios can potentially be moved to the cloud, but with a much smaller percentage likely to be moved after ROI models have been applied. In regard to replacement of existing business solutions with SaaS, this will clearly be situational – although many closer to the core will be replaced more slowly. This will often depend on how old and brittle the solution may be – and if a packaged ISV application, how far from being release-level current it may be. Regardless, we believe that the hybrid business portfolio will be dominated by cloud solutions in 2015, as the on-premise segment transforms from the driver of transactions to the repository of business data.In many cases, traditional on-premise ISVs will come to market with synchronized on-premise/cloud offerings that promise to extend the value proposition of the initial investment. The key will be to judge how real this value proposition may be, and how it would evolve over time.In consultation with IT architects, the CIO should be able to identify new cloud offerings that make sense, and which part of the enterprise applications portfolio or technology architecture should be Cloud-based and which should remain on-premise. For the CIO, this is an ongoing process that will eventually result in a hybrid cloud and on-premise business solutions portfolio – and a hybrid technology architecture with, potentially, a range of interconnected deployment options, including public cloud, private cloud, internal/private cloud, co-location or outsourced datacenter, and on-premise and possibly distributed datacenters. Understanding this potential complexity is an important part of making decisions about the acquisition of cloud solutions.
  1. Managing resources Moving to the cloud also means a fundamental change in how business or technology solutions will be managed. While assuming responsibility for managing the complexity of the hybrid architecture, the CIO will be transferring responsibility for operating and maintaining the cloud solutions from his IT organization to the cloud provider. Therefore, the CIO’s evaluation of cloud solutions should assess not only the technology and functional domains, but also the operational excellence of the cloud provider and the expected manageability of the ongoing relationship. In this regard, security and privacy issues top the list, followed closely by availability, response time, and the provider’s accountability for quality of service (including SLAs) and backup and recovery. Moving to cloud technology solutions such as IaaS or PaaS brings a requirement for evaluating operational excellence alongside the suitability of the cloud platforms for any particular workload or development objective.The challenge of managing new cloud assets will require the IT organization to change significantly. The move to the cloud will entail a fundamental shift from managing assets to supporting platforms, solutions and business processes.CIOs may increasingly acquire cloud and hybrid solutions thru business consultants and system integrators. System Integrators of all sizes and flavors will increasingly be key partners for CIOs in enabling migration of new and existing workloads and making cloud and on-premise solutions work together more effectively.IT organizations will also have to become more rigorous, adopting new processes that extend ITIL and other operational protocols to accommodate the growth of investment in the cloud. Over time, enterprise portfolios will become workflow-driven hybrids of cloud and on-premise data and functionality that are monitored, measured and managed to meet enterprise performance objectives.This shift from managing technology assets to managing and supporting platforms, solutions, and cloud providers raises the value of, and the challenges for, the IT management staff. It may be a difficult, even impossible, transition for some staff members, given who they are and their professional experience and it will be highly impactful for the IT organization as a whole. Anticipating and planning for the organizational impact of the cloud transition should be a high priority for the CIO. The CIO must anticipate and accommodate not only a shift in the cultural norms that cloud IT introduces, but also the impact of consumerization of IT and the new demands from his business unit partners.

Managing the resources needed to implement, utilize and evolve the hybrid portfolio efficiently will require instilling key management disciplines, illustrated in Table 1 – Ten Core Disciplines Required for Cloud IT Management.
The net impact
The transition to the cloud may not be a smooth path for the CIO, as this is a complex transition with many unknowns and challenges that cannot be fully understood at the outset. We realize the difficulty of this process. However, we also recognize that it is possible to avoid common mistakes that can be avoided. Lack of formal planning, poor governance and organizational responsibility, neglecting or underestimating the human resources challenge, no project management office, missing or incomplete inventory of assets, lack of operational oversight, few relevant service level agreements with providers, and poor communication with the various constituencies are a few of these common mistakes.
We recommend that CIOs consider carefully the four challenges we have identified when undertaking the transition to the Cloud. Neither the complexity of these challenges, nor their potential for business advantage and transformation should be underestimated, or taken lightly, as IT transitions to the cloud.
Mike West is a VP and Distinguished Analyst at Saugatuck Technology, a subscription research and advisory firm focused on key trends and emerging technologies driving change in business computing. Saugatuck is headquartered in Westport, CT, USA. For more information, go to

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