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How Technical Debt Ties to Cloud, Mobile and Social

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Many years ago, when I came to the US, I was shocked to the core seeing the collapsed West Side Highway in New York City. I simply could not believe that a highway would be neglected to that extent amidst all the affluence of the city. The contrast was too much for me.

Nowadays I often have a deja vu sensation in various technical debt engagements in which I find the code crumbling. This sensation is not so much about what happened (see The Real Cost of a One Trillion Dollars in IT Debt: Part II – The Performance Paradox for an explanation of the economics of the neglect of software maintenance during the past decade), but about the company for which I do the assessment giving up on immense forthcoming opportunities.

Whether you do or do not fully subscribe to the vision of the Internet-of-Things depicted in the figure below, it is fairly safe to assume that your business in the years to come will be much more connected to the outside world than it is now. The enhanced connectivity might come through mobile applications, through social networks or through the cloud. As a matter of fact, it is quite likely to come through a confluence of the three: Cloud, Mobile and Social.

In the context of current trends in cloud, mobile and social, your legacy software is like the West Side Highway in New York City. If you maintain it to an acceptable level, it can become the core of two major benefits of much higher connectivity and connectedness in the not-too-far future:

  • Through mobile and social your legacy software will enable you to flexibly produce, market and distribute small quantities of whatever your products might need to be in niche markets.
  • Through cloud it will enable you to offer these very same products and many others as services.

Conversely, if you consistently neglect to pay back your technical debt, your legacy code is likely to collapse due to the effects of software decay. You certainly will not be able to get it to interoperate with mobile and social networking applications, let alone offer it in the form of cloud services. Nor would you be able to wrap additional services around decaying legacy code. Take a look at the warehousing and distribution services offered by Amazon to get a sense of what this kind of additional services could do for your core business: they will enable you to transform your current business design by adding an Online-to-Offline (O2O) component to it.

What is the fine line differentiating “acceptably maintained” code from toxic code? I don’t think I have conducted a large enough sample of technical debt assessments to provide a statistically significant answer. My hunch is that the magic ceiling for software development in the US is somewhere around $10 per line of code in technical debt. As long as you are under this ceiling you could still pay back your technical debt (or a significant portion of it) in an economically viable manner. Beyond $10 per line of code the decay might prove too high to fix.

Why $10 and not $1 or $100 per line of code? It is a matter of balancing investment versus debt. An average programmer (in the US) with a $100,000 salary would probably be able to produce about 10K lines of Java code per year. The cost of a line of code under these simplistic assumptions is $10. Something is terribly wrong if the technical debt exceeds the cost per line. They call it living on margin.

Action item: CIOs should conduct a technical debt assessment on a representative sample of their legacy code. A board level discussion on the strategic implications for the company is called for if technical debt per line of code exceeds $10. The board discussion should focus on the ability of the company (or lack thereof) to participate in the business tsunami that cloud, mobile and social are likely to unleash.


Considering modernization of your legacy code? Let me know if you would like assistance in monetizing your technical debt, devising plans to reduce it and governing the debt reduction process. Click Services for details.


Consumerization of Enterprise Software

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Figure 1: Consumerization of IT

The devastation in traditional Publishing needs precious little mentioning. Just think about a brand like BusinessWeek selling for a meager cash offer in the $2 million to $5 million range, McGraw Hill getting into interactive text books through Inkling or Flipboard delivering “… your personalized social magazine” to your iPad. This devastation might not have gotten the attention that the plight of the ‘big three’ automobile manufacturers got, but in its own way it is as shocking as a visit to the abandoned properties in Detroit is.

As most of my clients do enterprise software, many of my discussions with them is about the consumerization of IT. From a day-to-day perspective this consumerization is primarily about six aspects:

  • Use of less expensive/consumer-focused components as infrastructure
  • ‘Pay as you go’ pricing (through Cloud pricing mechanisms/policies)
  • Use of web application interfaces to monitor IT infrastructure
  • Use of mobile and consumer based devices for accessing IT alerts and interfacing with systems
  • Use of the fast growing number of mobile applications to enhance productivity
  • Application of enterprise social networks and social software in the data center

From a strategic perspective, IT consumerization IMHO is all about the transformation toward “everything as a service” [1]. The virtuous cycle driven by Cloud, Mobile and Social manifests itself at three levels:

  • It obviously affects the IT folks with whom I discuss the subject. Immense changes are already taking place in many IT departments.
  • It affects their company. For example, the company might need to change the business design in order to optimize its supply chain.
  • It affects the clients of their company. Their definition of value changes these days faster than the time it takes the CIO I speak with to say “value.”

© Copyright 2010 Israel Gat

Figure 2: The Virtuous Cycle of Cloud, Mobile and Social

Sometimes I get a push-back from my clients on this topic. The push-back is usually rooted in the immense complexity (and fragility) of the enterprise software systems that had been built over the past ten, twenty or thirty years. The folks who push back on me point out that consumerization of IT will not scale big time until enterprise software gets “consumerized” or at least modernized.

I agree with this good counter-point but only up to a point. I believe two factors are likely to accelerate the pace toward “consumerization” of enterprise software:

  1. Any department/business unit that can get a service in entirety from an outside source is likely to do so without worrying about enterprise software and/or data center considerations. This is already happening in Marketing. As other functions start doing so, more and more links in the value chain of enterprise software will be “consumerized.” In other words, these services will be carried out without the involvement of the IT department.
  2. Once the switch-over costs from legacy code to state-of-the-art code are less than the steady state costs (to maintain and update legacy code), the “consumerization” of enterprise software is going to happen with ferocious urgency.

If you are in enterprise software you need to start modernizing your applications today. The reason is the imperative need to mitigate risk prior to reaching the end-point, almost irrespective of how far down the road the end-point might be.  See Llewellyn Falco‘s excellent video clip Rewriting Vs Refactoring for a crisp articulation of the risk involved in rewriting and why starting to refactor now is the best way to mitigate the risk.


[1] The phrase “Everything as a Service” has been coined by Russ Daniels.

Through the Prism of IT Transformation for Tomorrow’s Enterprise Datacenters: Interview with Annie Shum

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As indicated in our recent post “Extending the Scope of the Agile Executive”, Cote and I have recently reached the conclusion that The Agile Executive needs to cover structural changes in order to give a forward-looking view to its readers. We start the coverage of structural changes that are relevant to Agile with an interview with Annie Shum, VP of Advanced Technology, Amdocs Corp.

We cover a broad panorama in this interview with Annie. Here are some items that may be of special interest to the reader who focuses on Agile methods, processes and governance in a broad sense – from programming to IT operations and anything in between:

  • Unleashing disruptive transformations
  • Supply and demand – the two sides of the IT “coin”
  • Open source software in general and OpenStack in particular
  • The impact of social networking and other Web 2.0 tools
  • Three billion downloads and counting…
  • Finding the “right” balance between hierarchical command-control and bottom-up empowerment
  • “Self-service” IT service delivery/deployment
  • Forthcoming changes in IT system administration and the rise of DevOps
  • How to gain freedom from a variety of low-level operational tasks and controls of physical infrastructure
  • Provisioning and over provisioning
  • Many others…

Annie answers all questions with data, insights and passion. No surprises there…

Israel: Nancy Foy immortalized the monolithic International Business Machines Corporation in her classic “The Sun Never Sets on IBM.” Much has changed, of course, since the book was published in the 70’s. For quite a few years IBM has been deconstructing its business design, its organizational structure and both internal and external processes. By some accounts, prior to Gerstner IBM had even been contemplating reforming itself as a bunch of independent companies. The contrast to IBM’s announcement a couple of weeks ago about putting both software and hardware under one hand is noteworthy. What do you make of it, Annie? Is this a new development? Or is it a blast from the past?

Annie: Interesting question but I would be remiss if I failed to point out that I don’t have a crystal ball or the expertise to predict reliably whether this will be an isolated case or a trend-setter.  Although the arguably radical IBM organizational restructuring in management is newsworthy, I am not especially interested in looking at it purely from the perspective of vendor management structure because it is merely a means to an end.  What intrigues me is the rationale behind this key announcement.  In particular, I am interested in envisioning the more profound and potentially game-changing, if not disruptive, transformation that IBM hopes to unleash by adopting this bold organizational restructuring with likely (significant) risks.

To better understand this new undertaking, I think it would be instructive to analyze it from the supply side as well as the demand side.  So let’s break up the narrative: first by looking at the supply side, namely the IT service providers/system vendors, followed by the second half of the narrative, the customers/consumers.

Israel: I am intrigued by your supply side/demand side approach. Please elaborate.

Annie: To understand the supply side, consider the three major IT vendor announcements made during the week of July 19, 2010.  Not as three disparate events. Instead, by putting them in context and connecting the dots among them, we can uncover some very interesting insights into emerging trends of the IT industry in general and actionable guidelines for tomorrow’s enterprise datacenters in particular. 

Let’s begin with the May 2010 report from Saugatuck Research titled, “Gorillas In the Cloud: Applying Saugatuck’s “Master Brand” Model to Cloud IT” whereby “Master Brands” refer to those vendors (and service providers) that dominate and influence IT marketplaces, technologies and/or user accounts. This May report sets the stage for the latest Saugatuck research alert titled, “One-Stop Shopping – Major Vendors Acquire Assets for the Cloud”. This research alert describes how increasing numbers of major vendors are striving to become the “sole source for offerings up and down the IT EcoStack™ targeting the Cloud.”

As if on cue, IBM released two major announcements just this past week. First, on July 20, 2010, InformationWeek reported that IBM plans[i] to combine hardware and software to spur the company’s efforts to deliver bundled, plug-and-play systems. According to Sam Palmisano, the core strategy pivots on producing tightly bundled computer systems that “feature chips, middleware, and business software designed from the ground up to support Cloud Computing and other new-wave IT architectures.”

To some long-standing industry observers, this strategy may appear to be “back to the future” and IBM is simply returning to its roots after a prolonged hiatus from its original business model.  There is, however, an important historical footnote. Almost five decades ago, due to concerns of monopoly antitrust abuses stemming from the bundling of hardware and software in the IBM mainframe systems, the US government took legal action leading to IBM’s acceptance of the 1956 Consent Decree.

Today, unlike the past, IBM no longer dominates the computer systems market. In fact, there is a growing trend towards bundled systems, mainly by the “Master Brands”, to “mask” complexity for customers as they embark on implementing complex IT endeavors including key programs such as datacenter consolidation, server/storage virtualization, predictive analytics, SOA/BPM, Cloud Computing (public, private or hybrid), and Green IT. For example, Oracle acquired Sun Microsystems in 2009 for $7.4 billion to support what InformationWeek described as Larry Ellison’s “applications-to-disk” strategy, while HP and Microsoft earlier this year unveiled a multi-million dollar initiative under which they will jointly engineer servers and software.

It is likely that the timeline of the July 19 IBM announcement was influenced (perhaps even pressured) by its rivals taking a similar approach to address evolving enterprise datacenters. To expedite this strategy to deliver bundled “plug-and-play” systems, IBM first announced sweeping organizational restructuring to foster internal collaboration and harness synergies across products and LOBs. Clearly, the biggest change is the management restructuring by consolidating key hardware and software divisions under the watch of a single executive, Steve Mills who’s a longtime IBM software chief.

Next, just three days later on the heels of this organizational makeover, IBM made another major announcement on July 22, 2010 amidst much fanfare and hype. Presenting the vision of a new “Dimension in Computing” designed to control multi-platform datacenter operational costs and (significantly reduce complexity), IBM announced a new hybrid “system of systems” platform that unifies IT for efficient service delivery and large-scale datacenter simplification. Dubbed a “datacenter in a box” or a “cloud in a box[ii]”, it integrates the new super powerful and energy-efficient mainframe zEnterprise, 196  running z/OS and the zEnterprise  BladeCenter Extension zBX, running Linux and AIX. By extending the System Z’s qualities of service (spanning security, scalability, availability, efficiency and virtualization) to enable Cloud readiness and optimized service delivery for enterprises, IBM likely is promoting its strength in building private Clouds for large enterprises.  See the following two slides from the IBM July 22 announcement.

Israel: So it looks like the IT industry is heading towards more “power” consolidation of mega vendors or as you referenced earlier, “Master Brands”. Is this a fait accompli? If so, is it a matter of channeling demand toward one-stop-shopping irrespective of integration realities underneath? Isn’t there a danger to this trend?”

Annie: Despite these high profile announcements by the major vendors, it is far from fait accompli. And yes, your comments are only too real especially for those who have lived through the era of monopolies and antitrust concerns. Frankly, many people believe that such a trend may be a clear threat in the presently emerging era.  While I don’t want to downplay the risk and potential damage of antitrust abuses, I believe there are some factors at work here to counteract, or at least limit, unchecked monopolies in the IT industry.

In this Internet age with the rise of “Consumerization of IT”, catalyzed by the nearly ubiquitous access to social networking and other Web 2.0 tools, IT has permeated almost every market sector in our society. The set of functions and services supported and enabled by IT has become exceedingly vast, diverse and complex such that no single business model or supplier is in a position to dominate, let alone destroy all others.  The era when a handful of proprietary stalwart vendors dominated the IT industry is all but over. Just this past decade, we have witnessed the meteoric rise of Google, Facebook and more recently, Twitter. A growing formidable force, namely the open source software and its bottom-up self-organizing community, powers as well as empowers most if not all of the Web 2.0 companies. At this point in our discussion, it is apt to segue to the third vendor announcement during the week of July 19, 2010.

On July 19, Cloud service provider RackSpace with NASA announced the sponsorship of the project: OpenStack, an open source IaaS Cloud platform. Included in the announcement is a diverse group of computer system providers from across the technology industry like CITRIX, DELL, NTT DATA, RIGHTSCALE and others to drive a deployable, totally open cloud solution.  According to their mission statement, OpenStack is designed to foster the emergence of technology standards and Cloud interoperability. One of the primary objectives is to facilitate enterprises to avoid vendor lock-in.

Israel: This appears to be a very timely announcement given that “vendor lock-in” is one of the top concerns confronting enterprises as they evaluate and plan for the transition to Cloud Computing. Having said that, are we not back to “square zero” – striking a balance between openness and “one-stop shopping” tight integration?

Annie: Yes indeed. Although some industry observers describe the issue as “vendor lock-in”, others see it as a broader issue describing it as the “challenge/difficulty of bringing back in-house” or the “lack of interoperability standards for seamless portability”.  For example, in the 2009 Cloud Computing survey conducted by IDC, over 80% surveyed rated this issue under both labels to be very important.  Incidentally, I should point out that “vendor lock-in” is neither a new nor a unique issue with Cloud Computing. On the contrary, it is a long-standing “problem” going all the way back from the early days of mainframe computing and culminating with the government versus IBM antitrust lawsuit in the ‘50s as we discussed earlier.

Interestingly, there are many forms and variants of vendor lock-in and they are not all equal. For example, many industry observers have been unhappy with the proprietary development and delivery model that Apple imposed on the iPod/iPhone/iPad.  Although the risk of “vendor lock-in” may be real, any negative impact on the ever-growing large and loyal Apple customer base seems minimal.  Just think about the run-away successful App Store. It is heavily “curated” by Apple. Yet since its opening on July 10, 2008, there have been more than one hundred thousand available apps in App Store, over two billion application downloads (as of November 2009), and reaching three billion downloads by January 2010. Steve Jobs hailed this as a landmark event: “Three billion applications downloaded in less than 18 months – this is like nothing we’ve ever seen before.”

Sorry we digressed. So let’s resume our discussion of the recent major announcements.  In a nutshell, the OpenStack announcement attempts to address the issue directly by allowing any organization to create and offer Cloud Computing capabilities using open source software freely available under the Apache 2.0 license running on standard hardware.

Now this gets interesting: a tale of two diametrically opposite strategies.  On one hand, we have IBM announcing the high performance zEnterprise 196 as a hybrid integrated multi-architecture “datacenter /Cloud in a box”. The goal is to mask complexity and maximize efficiency:  infrastructure (management /admin costs savings up to 70%) and energy consumption (up to 82% energy usage reduction) with a bundled technology stack: integrating multi-platforms, infrastructure and management (spanning service, platform and hardware).  A principal concern of this proprietary single vendor approach is the risk of “vendor lock-in”.

On the other hand, the OpenStack is “DIY” based on an open source development platform. The goal of OpenStack is the following: “Anyone can run it, build on it, or submit changes back to the project. We strongly believe that an open development model is the only way to foster badly-needed cloud standards, remove the fear of proprietary lock-in for cloud customers, and create a large ecosystem that spans Cloud providers.”  The cons/challenges of this approach are probably similar to conventional “DIY” open source projects.

I should clarify that this dichotomy may be seen as an entire spectrum. As noted here IBM, VMware, etc on one hand, and RackSpace, Eucalyptus, etc on the other hand, exemplify the two end-points bookending the dichotomy spectrum. Along the spectrum, there are a growing number of intermediate options/offerings (with a rising number of variations) by a wide variety of IT Cloud service vendors: stalwart vendors including Amazon, Microsoft, Google,,  etc as well as young companies and startups such as RackSpace, RightScale, Boomi, Canonical, Cloudkick, Opscode, etc.

Israel: Is this shaping up to be a battle between two diametrically opposite strategies? And if so, which one will come out on top? Or is it a draw?

Annie: To me, a similar dichotomy has already existed previously in the IT industry. For example, think Apple versus Google. Consider the modus operandi of the Apple core business model (“close or at least closely curated” to optimize user experience and quality) versus that of Google’s (“open standards/APIs” to maximize opportunities for 3rd party development participation).

Insofar as whether bundled systems or “Cloud in a box” versus open source “DIY” will be the ultimate winner, I have to defer to other industry observers with more experience such as you.  Perhaps in our future Q&A meet-up, I am interested to hear your views on how the competition may be settled eventually.  However, while we all await the uncertain outcome, IT practitioners should be mindful that the dichotomy spectrum would have profound implications not only on the supply side but also on the demand side.  In particular, because the offerings from the dichotomy spectrum will be rapidly evolving, the fluidity will very likely confound and confuse users/consumers as they attempt to balance a convoluted set of different tradeoffs. Many  enterprise IT practitioners will be under pressure to make difficult and ambiguous choices by picking one or more evolving offerings over other evolving offerings for building the foundation of tomorrow’s enterprise datacenters in the Cloud era.

Israel: Good timing.  So far in our Q&A today, you have focused on the first half of the narrative – namely, the supply side, now let’s continue to part 2 of your narrative, namely, the demand side.

Annie:  Earlier, I discussed the supply side by connecting the dots among three key announcements during the week of July 19. Now similarly for the demand side, I will suggest a few more dots that I believe should be connected. Specifically, I suggest connecting the following trends:

  • The growing complexities and inefficiencies of on-premises enterprise datacenters;
  • The inevitable rise of alternative delivery and deployment models for IT services; and
  • The advent of Cloud Computing:  a long-standing vision whose time may finally arrive.

Several months ago, I published a guest post on your blog site entitled “The Urgency of Now.”  You might recall that I began the post with some sobering and perhaps even alarming statistics about the gross inefficiency of traditional on-premises enterprise datacenters.  Here again is the Enterprise Datacenter Index at–a-glance:

In summary, enterprise IT faces a “crisis of staggering complexity” and IT infrastructure is reaching a “breaking point” marked by such salient factors/trends[iii] as the following:

  • 1.5 X: Information explosion driving over fifty percent yearly growth in storage shipments;
  • 85% idle: Over-provisioned waste primarily in distributed computing environments e.g. typical computing resources (capacity) remain idle for  an average of over eighty percent;
  • $40 Billion or 3.5% of sales: Retail industries annual loss due to (supply) value chain inefficiencies;
  • 60-70% IT spending on maintenance/overhead: Overall IT spending profile shows that the lion’s share of IT expenses goes towards overhead and maintenance. Maintenance overhead: seventy cents per dollar is spent on maintaining IT infrastructures at the expense of adding new capabilities;

Now consider the following scenario. Suppose enterprise IT could choose an alternative set of “self-service” IT service delivery/deployment models that would be orthogonal to traditional hierarchical command-and-control Cap-ex based datacenters.  Instead of owning and tightly controlling its own private internal datacenter and purchasing capital resources up front, an organization on-demand would “rent” pooled computing resources hosted on the provider’s multi-tenant environment. The Internet would serve as the global infrastructure “grid” and all services would be delivered through Web APIs.  In lieu of having a dedicated IT staff administering IT operations, users could avoid lengthy red-tape delay and access directly/immediately to provision as well as to manage computing capacity as “self-service IT”. In addition, instead of formal contracts and protracted delay in hardware procurement, an organization would pay for access at any time to “unlimited” computing capacity simply with a credit card.

Because there would not be formal contracts imposing preset time commitments, both entry and exit would be friction-free. In this way, an organization could accelerate time-to-value/market and help to catalyze experimentation and innovative endeavor. Furthermore, CIOs of enterprise IT could avoid or mitigate the lose-lose dilemma because they would not be restricted to choosing either a policy that leads to “waste due to over-provisioning” using peak usage estimates for capacity planning or a policy that can incur “risk due to under-provisioning” using non-peak estimates. Ideally, IT staff would “plan capacity based on typical usage” while confident that it could “scale dynamically at peak times” to maintain performance and SLAs. Simply put, the primary objectives for today’s organizations are not just about increasing speed and efficiency for back office automation. Rather, they also are about increasing speed and flexibility to adapt to changes by yielding judicious control to providers for on-demand utility computing services off-premises.

Conceptually, this scenario is an overall vision of Cloud Computing. With the advent of Cloud Computing, the vision of “Computing as a Utility” is beginning to take shape. Since the early days of time-sharing computing, that vision has taken a quantum leap towards reality. One of the earliest references to Utility Computing occurred in 1961 at the MIT Centennial. On that occasion, John McCarthy presented his vision of computing organized as a public utility. Just as the telephone system had developed into a major industry, Professor McCarthy envisioned that “Computing as a Utility” could one day become the basis of a new and important public industry.

Rooted in the long-standing vision and hope for “Computing as a Utility” that began more than half a century ago, the genesis of Cloud Computing goes back a long way. To a growing number of industry observers, it is an old idea whose time may have finally arrived when, in 2006, Amazon began offering Cloud infrastructure services to the public as a utility. Despite initial skepticism, it was a watershed event in the quest of Utility Computing and helped to usher in the first wave of industrial-strength commercial Cloud Computing offerings.

Israel: To wrap up our discussion today, can you leave us with a few thoughts about some of the implications of Cloud Computing as enterprises begin their transition to the Cloud?

Annie: Eric Schmidt, Google’s Chairman and Chief Executive has stated that Cloud computing will be “the defining technological shift of our Generation”. However, the media and vendor-spun hype (at times referred to as “cloud-washing”) around this topic has created an unprecedented level of confusion. Today, unabated sound and fury surrounding the Cloud Computing buzz continues and indeed, increases. Nevertheless, it is all but certain that there will be no “big or easy switch” for enterprise IT to transition overnight from running applications on premises to the Cloud. Because the shift is not an “all-or-nothing” or a “one size fits all” endeavor, stakeholders in enterprises should take a judicious measured approach to balance different tradeoffs.

To sustain the transition of enterprise IT to the Cloud will require not only technological advances but also new business models, new forms of IT organizational management structure and perhaps even new IT roles.  One of the “inconvenient” truths about embracing new user-empowerment technology trends and business models is the slippery slope of finding the “right” balance between hierarchical command-control and bottom-up empowerment. The harm (ineffectiveness and counter-productivity) of too much top-down control can be matched or even surpassed by the dangers of too little control. User empowerment without reasonable constraints can lead to anarchy and chaos. A new form of organizational governance is clearly required to avoid these problems. Striking a balance between planned orderliness and new emergent forces has been a challenging dynamic since the dawn of civilization.

Many of the principles that have been refined over the millennia will have direct applicability for governing tomorrow’s world of “self-service” computing in the Cloud. Clearly, there will be direct implications to new scrutiny as well as the shaping/changing of security and governance related policies. However, an organization should not overlook the human aspects and the cultural impact on the IT system administration personnel.  For example, resistance to sweeping changes driven by a fear of losing control and the stress over the prospect of losing employment can be one of the more profound ramifications that often are under the management radar.

Cloud Computing likely will change the status quo of IT system administration and, perhaps in the future, could obviate the need for some traditional IT system skills. Cloud Computing, however, is also opening new opportunities for the technical IT community and enterprise IT personnel. There is a growing consensus that, as Cloud Computing evolves, the need for more business-minded IT staff will accelerate. Specifically, there likely will be an urgent need for people “with broader business skills who can manage multiple supplier relationships.”  Freed from a variety of low-level operational tasks and controls of physical infrastructure via Cloud Computing, enterprise IT has the opportunity to promote system administration staff to higher-level decision makers as IT service facilitators and SLA contracts managers. In the near future, many traditional hierarchical command-control system operators may pursue a wider array of IT professional opportunities spanning the roles of enterprise architects; capacity planning; budget planning; performance assurance; and data, security, governance gatekeepers.

Israel: This really resonates with what I see happening in many of my consulting engagements. Successful companies waste an immense amount of capital, energy and management attention on migrating from yesterday’s datacenter to today’s or tomorrow’s datacenter. When exposed to the pains of such migrations, I am always reminded of Peter Drucker’s quip “Companies make shoes!” It is beyond me why companies who makes shoes, cars, drugs or financial instruments would want to be prisoners of their own success, hopping over from one data center to a bigger data center every few years.

Annie: Thanks for Peter Drucker’s quip. I am going to borrow it for my future use.

Israel: Annie, I can’t thank you enough for sharing your insights with us. You really connect the dots!


[i] Based on the assumption that IT infrastructure performance can be greatly enhanced when each element is designed and brought to market as a component of a tightly integrated, optimized system.

[ii] With this slogan, IBM is promoting the hybrid zEnterprise 196 integrating multiple architectures and OS in a “box” as the one stop shopping ready-made private Cloud for enterprises.

[iii] Information source from IBM, The Open Group Conference, July 22, 2009.

It starts with Agile – The Pragmatic Cloud

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In the podcasts around here and Israel’s posts we often talk about using cloud computing as a tool to deliver better software – indeed, to better the software delivery process. Those two angle on cloud computing are what I tackled in a recent presentation (given as a keynote at the Philly Emerging Technologies for the Enterprise conference last week). As I said in the talk Agile development thinking is a great start for figuring out how to take advantage of cloud computing.

You can see a rehearsal recording of the talk over at my blog (or click play on the above) or hear an audio-only recording of the actual talk over at the Chariot TechNetCast, here’s the slides.

Written by Coté

April 14, 2010 at 9:00 am

Posted in Cloud Computing

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Harnessing Economies of Scale in Cloud Computing to Realize a Greener Computing Option

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Economies of Scale have been much discussed in The Agile Executive since the recent OpsCamp in Austin, TX. The significant savings on system administration costs  in very large data centers have been called out as a major advantage of Internet-scale Clouds. Unlike various short-lived advantages, the benefits to the Cloud operator, and to the Cloud user when the savings are passed on to him/her, are sustainable.

In this guest post, colleague and friend Annie Shum analyzes the various sources of waste in operations in traditional data centers. Like an Agilist with Lean inclinations who confronts an inefficient Waterfall process, Annie explains how economies of scale apply to the various kinds of waste that are prevalent in today’s small and medium data centers. Furthermore, she connects the dots that lead toward a Green IT option.

Here is Annie:

Harnessing Economies of Scale in Cloud Computing to Realize a Greener Computing Option

Scale Matters: “Over time, however, competitive advantage within categories shifts inexorably toward volume operations architecture.” – Geoffrey Moore, “Dealing with Darwin”

It is a truism that today’s datacenters are systemically inefficient. This is not intended as an indictment of all conventional datacenters. Nor does it imply that today’s datacenters cannot be made more efficient (incrementally) through right sizing and other initiatives, notably consolidation by deploying virtualization technologies and governance by enforcing energy conservation/recycling policies. There are a myriad of inefficiencies, however, that are prevalent in datacenters today.

Many industry observers lament the “staggering complexity” that permeates on-premises datacenters. Over time, most, if not all, enterprise IT datacenters have become amalgamations of disparate heterogeneous resources. Generally, they can be described as incohesive, perhaps even haphazard, accumulations. The datacenter components and configurations often reflect the intersections of organizational politics (LOB reporting structures leading to highly customized/organizational asset acquisitions and configurations), business needs of the moment (shifting corporate strategies and changing business imperatives to gain competitive edge or meet regulatory compliances) and technology limitations (commercial tools available in the marketplace). It should come as no surprise that human interactions and errors are considered a major contributor to the inefficiencies of datacenters: IBM reported that human errors account for seventy percent of the datacenter problems.

The challenge of maximizing energy efficiency begins fundamentally with the historical capital-intensive ownership model for computing assets to enable each organization to operate its own datacenter and to provide “24×7 availability” to its own users.  The enterprise IT staff has been required to support unpredictable future growth, accommodate situational demands and unscheduled but deadline-critical events, meet performance levels within SLAs and comply with regulatory and auditing requirements. Hence, datacenters generally are over-configured and over-provisioned. In addition to highly skewed under-utilization of distributed platform servers, ninety percent of corporate datacenters have excess cooling capacity. Worst of all, according to IBM, about seventy-two percent of cooling bypassed the computing equipment entirely. Further compounding these problems for a typical enterprise datacenter, is the lack of transparency and the inability to control energy consumption properly due to inadequate and often inaccurate instrumentation to quantify energy consumption and waste due to energy lost.

The economics of Cloud Computing can offer a compelling option for more efficient IT: by lowering power consumption for individual organizations and by improving the efficiency of a large number of discrete datacenters. Although the electricity consumption of Cloud Computing is projected to be one to two percent of today’s global electricity use, Cloud service providers can still cultivate sustainable Green I.T. effectively at lower costs by leveraging state-of-the-art super energy efficient massive datacenters, proximity to power generation thereby reducing transmission costs and, above all, harnessing enormous economies of scale. To better understand how Cloud Computing can offer greener computing in the Cloud and how will it help moderate power consumption by datacenters and rein in run-away costs, a good starting place is James Hamilton’s September 2008 study on Internet-Scale Service Efficiency” as summarized in the table below.

Resource Cost in

Medium DC

Cost in

Very Large DC

Network $95 / Mbps / month $13 / Mbps / month 7.1x
Storage $2.20 / GB / month $0.40 / GB / month 5.7x
Administration ≈140 servers/admin >1000 servers/admin 7.1x

Table 1: Internet-Scale Service Efficiency [Source: James Hamilton]

This study concludes that hosted services by Cloud providers with super large datacenters (at least tens of thousands of servers) can achieve enormous economies of scale of five to seven times over smaller scale (thousands of servers) medium deployments.  The significant cost savings is driven primarily by scale. Other key factors include location (low cost real estate and electricity rate, abundant water supply and readily available fiber-optic connectivity), proximity to electricity and power generators, load diversity, and virtualization technologies.

Will this mark the beginning of the end for traditional on-premises datacenters? Can enterprise IT continue to justify new business cases for expanding today’s non-renewable energy powered datacenters? According to the McKinsey article, the costs to launch a large enterprise datacenter have risen sharply from $150M to over $500M over the past five years. The facility operating costs are also increasing at about twenty percent per year. How long will the status quo last for enterprise IT considering the recent trend of Cloud service providers? Major players such as Google, Microsoft as well as the U.S. government itself have invested in or are planning ultra energy-efficient mega-size datacenters (also known as “container hotels”) with massive commoditized containerization and proximity both to power source and less expensive power rates. Bottom line: will the tide turn if the economics (radical cost savings) due to enormous economies of scale become too significant to ignore?

Despite the potential for significant cost savings, it is premature to declare the demise of traditional IT or the end of enterprise datacenters. After all, the rationale for today’s enterprise IT extends well beyond simplistic bottom-line economics – at least for now. To most industry observers, enterprise datacenters are unlikely to disappear although the traditional roles of enterprise IT will be changing. A likely scenario may involve redistributing IT personnel from operating low-level system operational tasks to addressing higher-level functions involving governance, energy management, security and business processes. Such change not only would become more apparent but will likely be precipitated by the rise of hybrid Clouds and the growing interconnection linking SOA, BPM and social computing. Another likely scenario is the rise of the mega datacenters or “container hotels” for Cloud Utility Computing providers. Although the global economic outlook will undoubtedly play a key role in shaping the development plans/timelines of the mega datacenters, they are here to stay. Case in point: by 2012, Intel estimates that it will design and ship about a quarter of the server chips (it sells) to such mega-data centers.

OpsCamp Through an Internet-scale Lens

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OpsCamp Austin 2010

Like Agile Roots in Salt Lake City in June 2009, OpsCamp in Austin last week demonstrated how powerful grass roots conferences can be. We might not have had big names on the roster, but we sure had a productive dialog on the tricky issues lurking in the cusp between software development and IT operations in Cloud environments.

The conference has been amply covered by Michael Cote, John Willis, Mark Hinkle, and Damon Edwards (to name a few). This post restricts itself to commenting on one fundamental aspect of the cloud which IMHO does not get the attention it deserves. It might be implied in various discourses on the subject, but I believe it needs to be called out as a fundamental assumption for just about anything  and everything one might consider doing with respect to the cloud. I am referring to economies of scale.

As pointed out in a forthcoming book on Cloud Computing by colleague and friend Annie Shum, the cloud phenomenon is fundamentally driven by substantial economies of scale in very large data centers. The operational costs of running such data centers are close to an order of magnitude lower than these prevailing in small and mid-sized data centers. User benefits are primarily derived from these compelling economies of scale.

I will be asking Annie to write a detailed guest post on the subject for readers of The Agile Executive. Until her post is published here, I would recommend we primarily consider the Cloud as a phenomenon that only becomes meaningful at scale. In particular, Private Clouds are not likely to yield Internet-scale efficiencies. Folks who regard their company’s conventional data center as a private cloud might be missing up on the ‘secret sauce’ of cloud computing.

The various agile system administration schemes discussed at the Austin OpsCamp are essential to attaining the requisite economies of scale in cloud services. Watch out for follow-on OpsCamps in other cities for developments to come in this all important space.

Agile Infrastructure

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Ten years ago I probably would not have seen any connection between global warming and server design. Today, power considerations prevail in the packaging of servers, particularly those slated for use in large and very large data centers. The dots have been connected to characterize servers in terms of their eco foot print.

In his Agile Austin presentation a couple of days ago, Cote delivered a strong case for connecting the dots of Agile software development with those of Cloud Computing. Software development and IT operations become largely inseparable in cloud environments.  In many of these environments, customer feedback is given “real time” and needs to be responded to in an ultra fast manner. Companies that develop fast closed-loop feedback and response systems are likely to have a major competitive advantage. They can make development and investment decisions based on actual user analytics, feature analytics and aggregate analytics instead of speculating what might prove valuable.

While the connection between Agile and Cloud might not be broadly recognized yet, the subject IMHO is of paramount importance. In recognition of this importance, Michael Cote, John Allspaw,  Andrew Shafer and I plan to dig into it in a podcast next week. Stay tuned…