Written by Mark Chillingworth
CIOs and cloud computing providers are fast approaching a major junction that will transform business, computing and therefore the CIO role for a generation. The direction of travel towards this major change is already afloat and failure to recognise it has the potential to send organisations, markets, providers and CIOs into a siding.
In September 2014 former ICI CIO Richard Sykes penned a column for the title it was my honour to edit that juxtaposed how the UK’s canals were surpassed by a new and highly disruptive technology called the railway. Skyes’ premise was that cloud computing is to business and in particular IT what railways were to canal transport the century before. Sykes and Horizon revisited his argument on the Regent’s Canal onthe Lady A, a typical narrow boat which was surpassed by the railway lines our canal trip would float past. Sykes, a columnist for Horizon Business Innovation is chair of the Cloud Industry Forum and carries out research for technology analysis houses Bloor and the Leading Edge Forum, the former CIO is a business leader who became a CIO rather than a technologist.
“I think the similarity is that the canals grew and developed over a period of about 60 years and the young entrepreneurs that built the canals and thought they would build more and more failed to notice in 1804 that Mr Trevithick had run the first steam engine,” Sykes says of how a major infrastructure was carved into the landscape. In today’s economy a 60 year run feels like a luxury. Today’s online services can lose a valued customer in the swipe of a finger.
“I do think we are at a point of further revolution coming through, so that even the early cloud leaders are beginning to face some interesting challenges,” Sykes says. “My point is that people who were up to their necks in canals in the late 1700s and early 1800s clearly would have not believed that anything could displace them and change them. You had a lot of sunk capital, by the time railway revolution took place, especially the building of the Stockton and Darlington railway and then the railways down to London they must have realised at that point that the game was up,” he says of how the railway took the lucrative freight logistics as well as the new social media of its time, passenger transport.
Sykes points out that just as today we have organisations offering a variety of full or partial cloud, so too the canals operated beside the railways.
“What is interesting is that a period of cohabitation existed, the parliament passed Act after Act to build new railways, so there was lots of capital in rail building, but the old sunk capital in the canals found its future and a way of working and the Regent’s Canal even gained business when the railways came down to what is now St Pancras and Kings Cross the canals found work in moving more and more coal as they were more effective at that. So the message is that 200 years back there was a lot of coexistence.”
New business models
Coexistence is not without its risks, the canals found their business model was no longer as profitable and had to make cuts to what they paid boatmen for example. Today vertical markets such as retail and the media have had to make significant cuts to staffing levels as cloud born rivals chew away at their financial margins. Sykes believes that cloud computing is enabling a new approach to business and this is driving the disruption.
“A lovely example is Dropbox, it got its business going providing storage for photographers and realised it could offer these services to industry. Then from observing how people worked they invented an amazing new product called DropBox Paper, which has been a major success,” Sykes says of the tool that has been essential to the development of Horizon by its publishers Icon Business Media.
Sykes adds that the same impact is happening to the technology sector: “business models are being ripped apart and rebuilt by new and different players for example HP said ‘we will remain a unified company’ and now there is a HP that is four different companies and I might even challenge the rationale of them,” he says of the technology giant best known for its printers.
“I recommend the book This is Service Design Thinking, over recent years the cloud companies have moved into services and a deep understanding of how people are using a technology and how it is changing behaviour. Social media is not a great technological vision, it began because people began putting in place some of the capabilities and people discovered it, said ‘we like this’ and began using it. So the big change in industry comes from responding to and improving the automation of their processes and networks and there are some further big changes coming down the track.”
Touching on social media it is interesting to note the similarities in resistance to change, just as social media is often blamed for today’s social ills, so too was the progress of the railways.
“The great Duke of Wellington in the House of Lords expressed concern about the riff raff that could move from the cities to the countryside and he didn’t think that was a terribly good idea,” Sykes shares with the CIO podcast.
Sykes and I first began working together in 2010 and together have seen cloud computing face the challenge of being unsuitable for business, to today widespread adoption. Juxtaposing the canals, Sykes says: “In 1821 the House of Commons authorised a horse drawn railway between Stockton and Darlington and Stephenson (of Rocket train fame) convinced the builder to use steam instead of horses and the change was referred to the House of Commons and Stephenson was asked if a steam train could safely travel at 5-6mph and he replied that even double that might be safely attainted and there was much laughter, so attitudes are attitudes. When cloud computing came in the industry attitude was it can’t be safe.”
Board level cloud
Because cloud computing is enabling new business models, whether challenger retailers or new technology companies like Dropbox, Sykes has always advocated that leadership teams need to have a full understanding of cloud computing.
“Several years ago I went with the Leading Edge Forum on one of their tours of Silicon Valley and there was a representative from one of the big pharmaceutical firms with us and he was from the research side and they were early adopters of doing major computer modelling in short bursts and they used Amazon and his computing folk heard about it and forbade it and Amazon responded. So an exercise was set up that was effectively pistols at dawn to compare each and Amazon was proven to be totally safe and the inhouse IT totally unsafe. So there was a lot of mud on a lot of faces.
“Boards are not getting their minds around cloud and there is a tendency to treat it as an exercise that the CIO must complete and it is a battle for the CIO to get themselves on the board and heard,” Sykes says.
“The key thing is that you have sunk cost in investment and ways of doing things, and a good example of that is Kodak and its inability to make the shift into digital. If a company can realise where its sunk costs are and how they can be shifted into new uses and new values. For example, ERP we have a big player in SAP that is client server architecture, massive numbers of legacy systems and licences so it is a big powerful engine that faces a lot of competition from Netsuite and Xero that both sell cloud native so they are free of all the constraints that SAP has. They are rapidly beginning to eat SAP’s breakfast, do SAP re-invest to become cloud native and at what time does it realise its become like Kodak. So the great thing is understanding your market and your capabilities and the technology enough to take the leap where your sunk costs are and get out of it into new markets and that is what boards really need to understand and explore,” Sykes says of how the incumbent technology leaders face the same challenges as retailer worried about Amazon.
Netsuite, Workday and Xero have become the well known enterprise technology disruptors and Sykes as chair of the Cloud Industry Forum says the UK and Europe has a wealth of interesting technology challengers in the market. But he also warns of trouble ahead.
“Amazon and Microsoft have provided access to lots and lots of computing at competitive prices it has allowed a myriad of new companies to flourish based on their deep understanding of how things work… the dilemma in the UK is they get to a certain size in the market and they try to expand their natural instinct is to go to America and link up with the Californian west coast companies, if you look at the marketplace for e-based services in Europe, companies that sell to their native market are about 44% of the market only 6% of the market is those firms selling across the European market 52% is the American companies coming into the European market. So the thing that is missing is that we get lots of bright innovative companies that do not grow across Europe and Brexit will not help.
“There is a danger of a repeat of the failure of the major industries in the UK, the great success of the innovative companies is that they build themselves on a great intimacy and they really understand a corner and as they grow they need a broader European community and if they can’t do that, the tendency is to go to the US because it is English speaking and a barrier free market.
Beyond cloud computing
Sykes is concerned because he is impressed with the opportunities the new breed of technology service providers offer CIOs: “This is where it is different to the rise of rail, with IT we are getting new capability like IOT, online machine learning, big data so you can analyse and these are things that British companies are leaders in and they get snapped up by a large firm out of the valley,” he says. The former CIO believes that orchestrating the latest range of service providers is a great opportunity for CIOs.
“There is a diverse ecosystem and it comes back to the board level conversation and the need to really understand what is important to your business and then to be able to go out to these small firms and get the skills and capabilities.
“If you take a step back, the great thing about the Amazon revolution is that they bought virtualisation and automation to core computing and you could get the basic computing with high efficiency and affordability, but they are running their datacentres as you would run your datacentre. The datacentre is all software defined, so a new revolution is coming through where the whole shooting match is software defined as a software pile. Canonical (founded by Mark Shuttleworth who founded Ubuntu and went to space), are bringing in new structures that allow you to operate in that environment, so with containers and Docker, which are very structured to allow you to go and operate in a much more flexible fashion. All of these are shorthand for new ways to create your software structures that is very flexible and very effective and you are beginning to get a new type of player.
“A competitor to Amazon and Microsoft is Packet, cold metal big centres of servers and they provide a spot market and you put your software structures and containers on top of that and I see Canonical doing that and it will be so effective for innovating rapidly and to operate very effectively that it will give Microsoft and Amazon a run for their money.
“I think Amazon are the canals, they have put in the place the things that show the canals at their price and we are coming up to the 1835 point and there will be a massive surge of a new way of doing things,” Sykes says.
So what does this mean for the role of CIO? Sykes believes we are entering an age where the CIO is more important than at any other time. Sykes says CIOs will become the enterprise technology curator: “they understand it all and what is the underlying structures, compute, how you shift and change. The CIO becomes the new great curator.
“It means CIOs have to become very powerful and effective storytellers especially to their board colleagues and we are now in a period of time that being a CIO is a great and very interesting job.”