Executive Interview: HP's Robin Purohit on How CIOs Can Contain IT Costs While Spurring Innovation Payoffs

Transcript of a BriefingsDirect podcast with HP's Robin Purohit on the challenges that CIOs face in the current economic downturn and how to prepare their businesses for recovery.

Listen to the podcast. Find it on iTunes/iPod and Podcast.com. Download the transcript. Learn more. Sponsor: Hewlett-Packard.

Dana Gardner: Hi, this is Dana Gardner, principal analyst at Interarbor Solutions, and you’re listening to BriefingsDirect.

Today, we present a sponsored podcast executive interview that focuses on implementing the best methods for higher cost optimization in IT spending. [See HP news from Software Universe on cloud enablement technologies.]

To better define the challenges facing CIOs today, and to delve into what can help them properly react, we are here with Robin Purohit, Vice President and General Manager for HP Software and Solutions. Welcome back to BriefingsDirect, Robin.

Robin Purohit: Wonderful to be here again with you, Dana.

Gardner: Clearly, the cost-containment conundrum of "do more for less" -- that is, while still supporting all of your business requirements -- is going to be with us for quite some time. I wonder, Robin, how are CIOs reacting to this crisis, now that we're more than a full year into it?

Purohit: Well, just about every CIO I've talked to right now is in the middle of planning their next year’s budget. Actually, it's probably better to say preparing for the negotiation for next year’s budget. There are a couple of things.

The good news is that this budget cycle doesn’t look like last year’s. Last year’s was very tough, because the financial collapse really was a surprise to many companies, and it required people to very quickly constrain their capital spend, their OPEX spend, and just turn the taps off pretty quickly.

We saw a lot of CIOs getting surprised toward the end of year 2009 and the beginning of year 2010, and just having to stop things, even things that they knew were critical to their organization’s success, and critical to their business success.

So, the good news is that we're not in that situation anymore, but it's still going to be tough. What we hear from CIO Magazine is that about two-thirds of the companies out there plan to either have flat or down IT budgets for next year. A small amount are trying to actually increase spend.

Every CIO needs to be extremely prepared to defend their spend on what they are doing and to make sure they have a great operational cost structure that compares to the best in their industry.

They need to be able to prepare to make a few big bets, because the reality is that the smartest companies out there are using this downturn as an advantage to make some forward looking strategic bets. If you don't do that now, the chances are that, two years from now, your company could be in a pretty bad position.

Gardner: Given that we are either flat or refining still and that this might last right through 2010, it means we have to look at capital spending. I think probably a lot of costs are locked in or have been already dealt with. When it comes to this issue of capital spending, how are these budgets being managed?

Important things

Purohit: Well, with capital spend, there are a couple of pretty important things to get done. The first is to have an extremely good view of the capital you have and where it is in the capital cycle.

You need to know what can be extended in terms of its life, what can be reused and what has to be refreshed? Then, when you do refresh it, there are some great new ways of actually using capital on server storage and networking that's at a much lower cost structure, and much easier to operate, than the systems we had three or four years ago.

Quite frankly, we see a lot of organizations still struggling to know what they have, who is using it, what they are using it for, and where it is in the capital life cycle. Getting all of that information that is timely, accurate, and at your fingertips, so you can enter the planning cycle, is extraordinarily important and fundamental.

Gardner: It certainly seems that the capital spending you do decide on should be of a transformational nature. Is that fair?

Purohit: Yes, it's true. I should have said that. Capital, as we all know is not only the hardware, but software. A lot of our customers are taking a hard look at the software licenses they have to make sure they are being used in the best possible way.

"Today's innovation is tomorrow’s operating cost."

Now, the capital budget that you can secure needs to be used in very strategic ways. We usually advise customers to look in two buckets.

One, when you are going to deploy new capital, always make sure that it's going to be able to be maintained and sustained in the lowest-cost way. The way we phrase this is, "Today's innovation is tomorrow’s operating cost."

In the past, we’ve seen mistakes made, where people deployed new capital without really thinking how they were going to drive the long-term cost structure down in operating that new capital. So that's the first thing.

The second is, the company wants to see the CIO use capital to support the most important business initiatives they have, and usually they are associated with revenue growth, by expanding the sales force, and new business units, some competitive program, or eventually a new ecommerce presence.

New business agenda

It's imperative that the CIO shows as much as possible that they're applying capital to things that clearly align with driving one of those new business agendas that's going to help the company over the next three years.

They are clearly in bucket that either dramatically lowers the ongoing cost structure of new technologies, or clearly rides the capital spend with something that a line of business executive is trying to do over the next two or three years. They have the best chance of getting what they think is really necessary.

Gardner: It seems that in order to know whether your spend is transformational, you need to gain that financial transparency, have a better sense of the true cost and true inventory, and move toward the transformational benefits. But, then you also need to be able to measure them, and I think we are all very much return-on-investment (ROI) minded these days. How do we reach that ability to govern and measure once we put things into place?

Purohit: It's a great point. The reality is the CIO has been a bit of a cobbler’s child for some time. They've done a great job putting in systems and applications that support the business, so that a sales executive or a business unit executive has all of the business process automation and all of the business information at their fingertips in real-time to go, and to be competitive and be aggressive in the marketplace.

It's imperative that the CIO shows as much as possible that they're applying capital to things that clearly align with driving one of those new business agendas that's going to help the company over the next three years.

CIOs traditionally have not had that same kind of application. While they can go through a manual and pretty brutal process to collect all this information, they haven’t had that real-time financial information, not only in what they have or plan to do, but to track, on an almost weekly basis, their spend versus plan.

I guess, all the CFO cares about is whether you are on track on your financial variance, and if you aren’t on track, what are you doing to real-time optimize to the changing realities of the budget that are adjusting monthly these days for most CIOs.

This is where we really see an opportunity. They help customers put in place IT financial management solutions, which are not just planning tools -- not just understanding what you have -- but essentially a real-time financial analytic application that is timely and accurate as an enterprise resource planning (ERP) system, or a business intelligence (BI) system that's supporting the company’s business process.

Gardner: If we have a ratio in many organizations where we have 70 percent roughly for maintenance and support and 30 percent for innovation, we're going to need to take from Peter to pay Paul here.

What is it that you can do on that previously "untouchable" portion of the budget? How can we free up capacity in the data-center, rather than build a new data center, for example?

It's a cyclical thing

Purohit: The joke I like to tell about the 70:30 ratio is that, unfortunately, we've been talking about that same ratio for about 10 years. So, somebody is not doing something right. But, the realty is that it's a cyclical thing. Today’s innovation is tomorrow's maintenance.

It's important to realize that there are cycles where you want to move the needle and there are cycles where you can't. Right now, we are in a cycle where every CIO needs to be moving that 70:30 to 30:70. That's because, first of all, they'll be under cost pressure. I really believe that the leaders of tomorrow in the business world are going to be created during the downturn. That's historically what we’ve seen. McKinsey has some good write-ups about that.

It means that you need to be driving as much innovation as possible and getting to that 70 percent. Now, in terms of how you do that, it's making sure that the capital spend that you have, that everything in the data center you have, is supporting a top business priority. It's the most important thing you can do.

One thing that won't change is that demand from the business will all of a sudden strip your supply of capital and labor. What you can do is make sure that every person you have, every piece of equipment you have, every decision you are making, is in the context of something that is supporting an immediate business need or a key element of business operation.

When we work with a lot of customers, we help them do that assessment, and I'll give you one example. A utility company I worked with was able to identify up to $37 million of operational and capital cost savings in the first couple of years just by limiting stuff that wasn't critical to the business.

It also means there are more things and more new things to manage.

There are lots of opportunities to be disciplined in assessing your organization, both in how you spend capital, how you use your capital, and what your people are working on. I wouldn't call it waste, but I would call it just a better discipline and whether what you're doing truly is business critical or not.

Gardner: I suppose having that financial visibility and transparency that allows that triage to take place, and then moving towards this flip of 70:30 ratio, we have to involve people and process and not just technology, right?

Purohit: That's right. If you don't get the people and process right, then new technologies, like virtualization or blade systems, are just going to cause more headaches downstream, because those things are fantastic ways of saving capital today. Those are the latest and greatest technologies. Four or five years ago, it was Linux and Windows Server.

It also means there are more things and more new things to manage. If you don't have extremely disciplined processes that are automated, and if you don't have all of your team with one play book on what those processes are, and making sure that there is a collaborative way for them to work on those processes, and which is as automated as possible, your operating costs are just going to increase as you embrace the new technologies that lower your capital. You've got to do both at the same time.

Gardner: Now, HP Software Solutions has been describing this as operational advantage, and that certainly sounds like you're taking into consideration all the people and process, as well as the technology. Tell me a little more about what you’ve been doing in the past several months and how this will impact the market in 2010.

Best in class

Purohit: We talk about operational advantage, we talk first of all about getting close to a best-in-class benchmark of your IT costs as a percentage of your company’s revenue.

They say close to best, because you never want to race to the bottom and be the lowest-cost provider, if you want to be strategic. But, you'd better be close. Otherwise, your CFO is going to be breathing down your neck with lots of management consultants asking why you are not there.

The way you get there is through a couple of key steps that we have been recommending. First and foremost, you have to standardize and automate as much as you can.

The great news is that, right now, there is really sophisticated technology that we have. Many companies have to apply this to this problem, where you can take a lot of the stuff that you know how to do every day and that involves a lot of people, and eventually a lot of manual work that could be done incorrectly, if you are not careful.

Standardize and automate them to make sure they get done in a very efficient way, in the cheapest possible way, and in the same way every time. We've seen customers take $10 million of operating cost out in 6 to 9 months just by automating what they know to do and what they know they need to do repeatably every time.

We’ve done a ton of work to roll out and automate those best practices, and how to get the advantages of faster innovation using Agile development, without creating a bunch of risks as you move faster.

The second thing that we really work on with people is getting that financial visibility, and getting all of their financial information on labor, projects, capital, and plans in one place, with one data model, so that they have a coherent way to plan and optimize their spends.

Those two things are huge levers. The third thing that we've really started to work with people on is all of these innovation projects, which are really brand new innovative techniques, like Agile development?

How do you make that labor tool extremely effective using that new technique like Agile development? We’ve done a ton of work to roll out and automate those best practices, and how to get the advantages of faster innovation using Agile development, without creating a bunch of risks as you move faster. Those are three really fundamental elements of what we're doing right now.

Gardner: I suppose that when you are picking on something quite as complex as this, you need to have some goal and some vision and direction about what are the realistic goals for some of these cost optimization activities. You mentioned the percent of revenue for IT spend as one gauge. What sort of results do you think people can meaningfully and realistically get in terms of some of these larger metrics?

Important goal

Purohit: We've seen the best companies actually implement this swap from 30:70 to 70:30. So, getting to 30 percent of your spend on operating costs in this cycle, where you need to be investing for the future, is absolutely an achievable and important goal. The second thing is to make sure that you’re benchmarking yourself on this cost of IT versus revenue on the most important competitors in your industry.

The reason that I phrased it that way is that it's not a general benchmark and it's not just the lowest-cost provider in your geography or industry, but you want to know what your most important competitor is doing, using technology as an advantage for both cost structure and innovation.

You want to understand that, spending probably something similar to that, and then hopefully be smarter than them in how you implement that strategy. Those are two really important things.

The third thing is that, depending where your IT organizational maturity is, there are opportunities to take out as much as 5 to 10 percent of your operating cost just by being more disciplined.

Say that you're a new CIO coming to organization and you see a lack of standardization, a lack of centers of excellence, and a lot of growth through merger and acquisition, there is a ton of opportunity to take out operating cost.

We've seen customers generally take out 5 to 10 percent, when a new CIO comes on board, rationalizes everything that's being done, and introduces rigorous standardization. That's a quick win, but it's really there for companies that have been probably a little earlier in the maturity cycle of how they run IT.

The same thing is happening now that happened in 2001, when we had our last major downturn. In 2001, we saw a rise of outsourcing and off-shoring, particularly to places like India.

Gardner: Another way of reducing this percentage of total revenue, I have to imagine, from all the interest in cloud computing these days, comes from examining and leveraging, when appropriate, a variety of different new sourcing options, both, new and old. How does that relate to this cost optimization equation?

Purohit: That's a great point. The same thing is happening now that happened in 2001, when we had our last major downturn. In 2001, we saw a rise of outsourcing and offshoring, particularly to places like India.

That really helped companies to lower their cost structure of their labor dramatically and really assess whether they needed to be doing some of these things in-house. So, that clearly remains as an option. In fact, most companies have figured out how to do that already. Everybody has a global organization that moves the right labor to the right cost structure.

A couple of new things that are possible now with the outsourcing model and the cloud model -- whether you want to call it cloud or software as a service (SaaS) -- is that there's an incredibly rich marketplace of boutique service shops and boutique technology providers that can provide you either knowledge or technology services on-demand for a particular part of your IT organization.

That could be a particular application or a business process. It could be a particular pool of knowledge in running your desktop environment. There's really an incredible range of options out there.

Questions for the CIO

What every CIO needs to be doing is standing back and saying, "What do we really need to be the best at, and where is critical intellectual property that we have to own?" If you're not running at the best possible cost structure for that particular application or business process or you're not operating this infrastructure at the best possible cost structure, then why don't we give it to somebody else who can do a better job?

The cost structures associated with running infrastructure as a service (IaaS) are so dramatically lower and are very compelling, so if you can find a trusted provider for that, cloud computing allows you to move at least markets that are lower risk to experiment with those kind of new techniques.

The other nice thing we like about cloud computing is that there is at least a perception that is going to be pretty nimble, which means that you'll be able to move services in and out of your firewall, depending on where the need is, or how much demand you have.

It will give you a little bit of agility to respond to the changing needs of the business without having to go through a long capital-procurement cycle. The only thing I would say about cloud is be cautious, because it's still early, and we're seeing a lot of experimentation.

The most important thing is to pick cloud providers that you can trust, and make sure that your line of business people and people in your organization, when they do experiment, are still putting in the right governance approach to make sure that what's going out there is something that doesn’t introduce extra risk to your business.

There’s a lot of diligence that needs to be put in place, so that cloud becomes less an experiment and more a critical element of how you can address this cost-structure issue.

Trust your provider, if you are putting data out there in the cloud. Do you trust how that data is being handled? If that cloud infrastructure is part of a business critical service, how are you measuring it to make sure that it's actually supporting the performance availability security needs of what the business needs?

There’s a lot of diligence that needs to be put in place, so that cloud becomes less an experiment and more a critical element of how you can address this cost-structure issue.

Gardner: Now, when we talk about cost structure, I would think that's even more critical for these cloud providers in order for them to pass along the savings. They themselves must put into place many of the things we have talked about today.

Purohit: That's right. Cloud providers have to push the needle right to the edge in order to compete. They're using the best possible new technology around blade computing, virtualization, automating everything, new service oriented architecture (SOA) technologies, so that you can do small component applications and stitch them together super fast.

The right governance

That's the value that they're providing. Then, the challenge is that you've got to make sure that not only do they have the great innovation, and great cost structure, but you trust what they are doing and that they have the right governance around it. I think that's really going to be what separates the lowest-cost cloud providers from the ones that you want to bet your business on.

Gardner: Is there anything else you want to offer in terms of thinking about cost optimization and how to get through the next year or two, where we are flipping ratios but are also maintaining lower total cost?

Purohit: I want to go back to this innovation bucket, because, as I said, you don't want to come out of this cycle as a CIO who was associated only with lowering cost and didn't fundamentally move the needle out, making the business more competitive.

You have limited ability to make those bets. So, the best bets are ones that are very prevalent, very top of mind for the business executives who really change the dynamic in terms of competitiveness, sales productivity, or the way they engage their customers.

The most consistent project that we have seen, the kind of project we see out there that are good bets for those innovation dollars, is around a theme you call application modernization.

The most consistent project that we have seen, the kind of project we see out there that are good bets for those innovation dollars, is around a theme you call application modernization.

What's happening right now in the industry is what we believe is the biggest revolution in application technology of the enterprise in probably 10 years. That's a composite of things that you build applications with these new Agile development methods.

All of these rich Internet protocols are revolutionizing the way you visualize and interact with applications, crossing over from the consumer world into the enterprise world. A whole, new wave of application platform technology is being introduced by SAP, Oracle, and Microsoft. And, SOA is becoming very real, so that you can actually integrate these applications very quickly.

Our view is that the companies who use this opportunity to modernize their applications and have this rich interactive visual experience, where they can nimbly integrate various application components to innovate and to interact with their customers or their sales people better, are the ones that are going to emerge from this downturn as the most successful leveraging technology to win in the marketplace.

We really encourage customers to take a very hard look at application modernization, and are helping them get there with those scarce innovation dollars that they have.

Gardner: Very good. We've been discussing the need for implementing best methods and achieving higher cost optimization by looking at reverse ratios from maintenance and support to innovation and transformation. Helping us along our journey in our discussion, we've been joined by Robin Purohit, the General Manager and Vice President for HP Software Solutions. Thanks so much, Robin.

Purohit: Thanks, Dana.

Gardner: This is Dana Gardner, principal analyst at Interarbor Solutions. You have been listening to a sponsored BriefingsDirect Podcast. Thanks for listening, and come back next time.

Listen to the podcast. Find it on iTunes/iPod and Podcast.com. Download the transcript. Learn more. Sponsor: Hewlett-Packard.

Transcript of a BriefingsDirect podcast with HP's Robin Purohit on the challenges that CIOs face in the current economic downturn and how to prepare their businesses for recovery. Copyright Interarbor Solutions, LLC, 2005-2009. All rights reserved.

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BriefingsDirect Analysts Unpack the Psychology of Project Management Via 'Pragmatic Enterprise 2.0' and SOA

Edited transcript of BriefingDirect Analyst Insights Edition podcast, Vol. 47 on new tools for measuring and building trust in technology adoption.

Listen to the podcast. Find it on iTunes/iPod and Podcast.com. Download the transcript. Charter Sponsor: Active Endpoints. Also sponsored by TIBCO Software.

Special offer: Download a free, supported 30-day trial of Active Endpoint's ActiveVOS at www.activevos.com/insight.

Dana Gardner: Hello, and welcome to the latest BriefingsDirect Analyst Insights Edition, Volume 47. I'm your host and moderator Dana Gardner, principal analyst at Interarbor Solutions.

This periodic discussion and dissection of IT infrastructure related news and events -- with a panel of industry analysts and guests -- comes to you with the help of our charter sponsor, Active Endpoints, maker of the ActiveVOS visual orchestration system, and through the support of TIBCO Software.

Our topic this week on BriefingsDirect Analyst Insights Edition, and it is the week of Nov. 9, 2009, centers on how to define, track and influence how people adapt to and adopt technology.

Any new information technology might be the best thing since sliced bread, but if people don’t understand the value or how to access it properly -- or if adoption is spotty, or held up by sub-groups, agendas, or politics -- then the value proposition is left in the dust.

A crucial element for avoiding and overcoming social and user dissonance with technology adoption is to know what you are up against, in detail. Yet, data and inferences on how people really feel about technology is often missing, incomplete, or inaccurate.

Today, we're going to hear from two partners who are working to solve this issue pragmatically. First, with regard to Enterprise 2.0 technologies and approaches. And, if my hunch is right, it could very well apply to service-oriented architecture (SOA) adoption as well.

I suppose you can think of this as a pragmatic approach to developing business intelligence (BI) values for people’s perceptions and their ongoing habits as they adopt technology in a business context.

So join fellow ZDNet bloggers, Michael Krigsman, president and CEO of Asuret, as well as Dion Hinchcliffe, founder and chief technology officer at Hinchcliffe & Co. as they explain how Pragmatic Enterprise 2.0 works. Together with our panel, we can plumb whether this could help with SOA adoption -- and maybe even other types of technology- or creative pursuit-adoptions as well.

Before we delve into this and hear more about Pragmatic Enterprise 2.0, please allow me to introduce our panel this week. We're joined by Joe McKendrick, prolific blogger and analyst. Welcome to the show, Joe.

Joe McKendrick: Thanks, Dana. Pleased to be here, and hello to everybody.

Gardner: We’re also joined by Miko Matsumura, vice president and chief strategist at Software AG. Welcome, Miko.

Miko Matsumura: Great. Good to be here.

Gardner: Ron Schmelzer, managing partner at ZapThink. Welcome back, Ron.

Ron Schmelzer: Hola. Bienvenido.

Gardner: Tony Baer, senior analyst at Ovum. Hi, Tony.

Tony Baer: Hey, Dana. Hi, everybody. Good to be here.

Gardner: We're also joined by Sandy Rogers, independent industry analyst. Welcome, Sandy.

Sandy Rogers: Great, Dana. Glad to be here.

Gardner: And, last but not the least, Jim Kobielus, senior analyst at Forrester Research. Welcome, Jim.

Kobielus: Selamat petang. There, I matched Ron Schmelzer in gratuitously using a foreign language to welcome everybody.

Gardner: Okay, let's hand this off to Dion Hinchcliffe. Tell me, Dion, about how you thought that you needed more pragmatism when it came to bringing Enterprise 2.0 technologies into practice, how you found Michael Krigsman, and how you two hooked up on this?

Social software

Dion Hinchcliffe: Absolutely, Dana, thanks for having us on the show. It's a real honor to be in front of such an august audience. As many of you know, we've been spending a lot of time over the last few years talking about how things like Web 2.0 and social software are moving beyond just what’s happening in the consumer space, and are beginning to really impact the way that we run our businesses.

More and more organizations are using social software, whether this is consumer tools or specific enterprise-class tools, to change the way they work. At my organization, we've been working with large companies for a number of years trying to help them get there.

This is the classic technology problem. Technology improves and gets better exponentially, but we, as organizations and as people, improve incrementally. So, there is a growing gap between what’s possible and what the technology can do, and what we are ready to do as organizations.

I've been helping organizations improve their businesses with things like Enterprise 2.0, which is social collaboration, using these tools, but with an enterprise twist. There are things like security, and other important business issues that are being addressed.

Businesses are about collaboration, team work, and people working together . . .

But, I never had a way of dealing with the whole picture. We find that that folks need a deep introduction to what the implications are when you have globally visible persistent collaboration using these very social models and the implications of the business.

We see organizations like the public sector getting more into this. Government 2.0 is one of the hottest topics. Increasingly, as these things become reality in large organizations, people are worried about what kind of control they're giving up and what kind of risk they're incurring?

Michael, of course, is famous for his work in IT project risk -- what it takes for projects to succeed and what causes them not to succeed. I saw this as the last leg of the stool for a complete way of delivering these very new, very foreign models, yet highly relevant models, to the way that organizations run their business.

Businesses are about collaboration, team work, and people working together, but we have used things like email, and models that people trust a lot more than these new tools.

Understanding projects

I've been working on big IT projects most of my life. I've been a solo architect and also focused on people in the enterprise. What Michael brings to the table is all his experience in terms of understanding. But, it requires understanding what’s really taking place inside projects where, one, the technology is not necessarily well-understood by the organization and, two, the implications on the business side are not well-understood.

There is usually a lot of confusion and uncertainty about what’s really taking place and what the expectations are. And Michael, with Asuret, brings something to the table. When we package it as a service that essentially brings these new capabilities, these new technologies and approaches, it manages the uncertainty about what the expectations are and what people are doing.

What we have designed is not specific to Enterprise 2.0 at all. It's really for when you are bringing in any new transformative technology with the same set of issues. I want Michael to speak more about what he is doing and how his side works.

Gardner: Sure. Michael, tell us a little bit about Asuret, and how your process works, maybe specifically with Enterprise 2.0, but with technology generally?

Michael Krigsman: Think about business transformation projects -- any type. This can be any major IT project, or any other type of business project as well. What goes wrong? If we are talking about IT, it's very tempting to say that the technology somehow screws up. If you have a major IT failure, a project is late, the project is over budget, or the project doesn’t meet expectations or plan, it's extremely easy to point the finger at the software vendor and say, "Well, the software screwed up."

If we look a little bit deeper, we often find the underlying drivers of the project that is not achieving its results. The underlying drivers tend to be things like mismatched expectations between different groups or organizations.

For example, the IT organization has a particular set of goals, objectives, restrictions, and so forth, through which they view the project. The line of business, on the other hand, has its own set of business objectives. Very often, even the language between these two groups is simply not the same.

As another example, we might say that the customer has a particular set of objectives and the systems integrator has its own objectives for the particular project. The customer wants to get it done as fast and as inexpensively as possible. The systems integrator is often -- and I shouldn’t make generalizations, but -- interested in maximizing their own revenue.

If we look inside each of these groups, we find that inside the groups you have divisions as well, and these are the expectation mismatches that Dion was referring to.

If we look at IT projects or any type of business transformation project, what’s the common denominator? It's the human element. The difficulty is how you measure, examine, and pull out of a project these expectations around the table. Different groups have different key performance indicators (KPIs), different measures of success, and so forth, which create these various expectations.

Amplifying weak signals

How do you pull that out, detect it inside the project, and then amplify what we might call these weak signals? The information is there. The information exists among the participants in the project. How do you then amplify that information, package it, and present it in a way that it can be shared among the various decision-makers, so that they have a more systematic set of inputs for making decisions consistently based on data, rather than anecdote? That’s the common thread.

Gardner: Michael, what you're doing here is providing this as a service, right? People don’t have to install this. They don’t have to do it themselves. You're offering a web interface-based approach to gathering inference from different players within this project, portfolio, what have you, implementation adoption pattern, sussing out what those folks are feeling, and then bringing that in a visual way to the attention of the project leaders. Is that right?

Krigsman: Yes. We offer a service. We're not selling software. We offer a service, and the service provides certain results. However, we've developed software, tools, methods, techniques, and processes that enable us to go through this process behind the scenes very efficiently and very rapidly.

Gardner: I had a chance to look at a demo of this. I haven’t tried it myself. I can’t vouch for it and I am not endorsing it, but what struck me as interesting is the fact that we're actually approaching the right part of the problem, when it comes to adoption.

Let's go to Sandy Rogers. Now, you headed up the SOA practice at IDC not too long ago. We kept encountering, in some of the discussions I had with you, this issue about why the projects stumble from time-to-time. What’s the hold up? It almost always came back to these people issues, and yet we had very little at our fingertips to apply to it. Does this sound like something that is a start for going in the right direction. Do you have any takeaways?

Rogers: What we discovered in our studies is that one of the fundamental needs in running any type of business project -- an SOA project or an Enterprise 2.0 IT project -- is the ability to share information and expose that visibility to all parties at levels that will resonate with what matters to them the most, but also bring them outside of their own domain to understand where dependencies exist and how one individual or one system can impact another.

One of the keys, however, is understanding that the measurements and the information need to get past system-level elements. If you design your services around what business elements are there and what matters to the business, then you can get past that IT-oriented view in bringing business stakeholders in aligned management and business goals to what transpires in the project.

Any way that you can get out -- web-based, easy-access dashboard with information -- and measure that regularly, you can allow that to proliferate through the organization. Having that awareness can help build trust, and that’s critical for these projects.

Gardner: Ron Schmelzer, we had a roundtable discussion in Boston several months ago, looking at the SOA topic and whether it was dead or not. I think some of the feelings from the panelists there were that it's not dead, but that it needs to be done better and differently. Is this what we're describing here with Michael and Dion? It sounds like it's moving in the right direction toward that balance of people, process, and technology.

More than technology

Schmelzer: Certainly, a lot of what people are doing with SOA is really just trying to do the things that people have established with enterprise architecture (EA). As we all know EA isn't about technology and buying things. It's about applying things and it's about people and process, much more than it’s about technology. That’s the hope.

The last thing you want to be doing is constantly scrambling and redoing your architecture because somebody somewhere in the organization has introduced some new technology. The wonderful paradise that we're trying to achieve is the stability of architecture, even though everything else is changing, the process is changing, and the technology is changing.

Given that, one of the things that we realized pretty early in this coverage of SOA, maybe about a decade ago, is that companies really need to manage their people, their governance, and their organization much more than they need to worry about buying the right tools.

As a matter of fact, you can buy the wrong tools, have great processes, and still have great outcomes. But if you buy the best tools, whatever that means, and you've got poor processes, you are guaranteed to have poor outcomes.

. . . It's mostly up to people and process to make sure the whole thing functions in a way that's returning value to the business.

It's like buying a pair of pants and putting them on. We have a complex system with a lot of moving parts, with a lot of interactions that are visible and hidden, and it's mostly up to people and process to make sure the whole thing functions in a way that's returning value to the business.

Gardner: Joe McKendrick, you’ve been covering SOA for some time, as a blogger on ebizQ and ZDNet. Often times, these topics around politics, fiefdoms, misunderstandings, and allowing people to communicate well come up again and again. Like the weather, we keep talking about it, but no one does anything about it.

It sounds as if Michael and Dion are trying to do something about it, at least for Enterprise 2.0. How does this strike you as to getting inside in data, into perceptions, and then being able to work with that? Is it a significant part of the problem and solution?

All about organization

McKendrick: Michael and Dion, I think you're on the right track with that. In fact, it's all about organization. It's all about the way IT is organized within the company and, vice-versa, the way the company organizes the IT department. I’ll quote Mike Hammer, the consultant, not the detective, "Automate a mess and you get an automated mess." That's what's been happening with SOA.

Upper management either doesn't understand SOA or, if they do, it's bits and pieces -- do this, do that. They read Enterprise Magazine. The governance is haphazard, islands across the organization, tribal. Miko talks about this a lot in his talks about the tribal aspect. They have these silos and different interest groups conflicting.

There's a real issue with the way the whole process is managed. One thing I always say is that the organizations that seem to be getting SOA right, as Michael and Dion probably see with the Enterprise 2.0 world, are usually the companies that are pretty progressive. They have a pretty good management structure and they're able to push a lot of innovations through the organization.

The companies that really could use these processes, the companies that really could use a good dose of service orientation, are the companies that just don't get it. It's a paradox.

Gardner: Miko Matsumura, as a supplier of software and services at Software AG, are you all looking for people like Dion and Michael to come up with these ways in which those tribal elements can be addressed? Is this something that intrigues you?

Matsumura: Absolutely. I had a wonderful conversation with Michael earlier and I appreciate his invite to come join this conversation. This type of an approach really reflects the evolution of the best practice of adoption. Some of the themes that we've been talking about today around this sharing of information, communication, and collaboration, are really are essential for success.

I do want to caution just a little bit. People talk about complexity and they create a linkage between complexity and failure. It's more important to try to look at, first of all, the source of the problem. Complexity itself is not necessarily indicative of a problem. Sure, it's correlated, but ice-cream consumption is correlated with the murder rate, just as a function of when temperatures get hot, both things happen to increase. So complexity is also a measure of success and scale.

I’d like to point to a different culprit, which I call "entropy" or "waste," and look at waste as being either over-complexity -- or over-simplicity in some cases. Over-simplicity can be as much of a villain as over-complexity. To me one of the biggest sources of complexity is tribalism and people fighting each other.

Providing a really transparent flow of measurements and metrics is obviously a tremendously important step. We have a methodology that we call the performance-driven organization that uses KPIs to increase organizational alignment. But, really, what you're doing is just shifting the fight. You're basically saying, "Let's not fight about one set of things. Let's fight about a set of so-called objective KPIs."

All about trust

The issue it comes down to for me is what Sandy said, which is that the word "trust," which is thrown in at the very end, turns out as extremely expensive. That alignment of organization and trust is actually a really important notion.

What happens with trust is that you can put things behind a service interface. Everything that's behind a service interface has suddenly gotten a lot less complex, because you're not looking at all that stuff. So, the reduction of complexity into manageability is completely dependent on this concept of trust and building it.

Gardner: The interesting thing you mentioned here is the metrics and the data. Having some kind of objective or constant way of evaluating what's going on and how that's changing over time, whether it's positive or negative, and then how to adapt, creates some sort of a positive feedback process loop.

Jim Kobielus, you deal with data analysis all the time. Tell me your impressions about bringing a data-analysis capability to how people react to something like implementing and adopting and adapting to Enterprise 2.0 or SOA.

Kobielus: A dashboard is so important when you are driving a vehicle, and that's what a consolidated view of KPIs and metrics provides. They are a dashboard in the BI sense, and that's what this is, project intelligence dashboard for very complex project or mega programs that are linked projects. In other words, SOA in all of its manifestations.

In organization, you have to steer your enterprise in a different direction. You need obviously to bring together many projects and many teams across many business domains. They all need to have a common view of the company as a whole -- its operations, various stakeholders, their needs, and the responsibilities internally on various projects of various people. That's highly complex. So, it’s critical to have a dashboard that's not just a one-way conduit of metrics, from the various projects and systems.

In the BI world, which I cover, most of the vendors now are going like crazy to implement more collaboration and work-flow and more social community-style computing capabilities into their environments. It's not just critical to have everybody on the same page in terms of KPIs, but to have a sideband of communication and coordination to make sure that the organization is continuing to manage collectively according to KPIs and objectives that they all ostensibly agree upon.

This is important. Social computing must come to the very heart of dashboarding to enable collaborative SOA project governance.

Gardner: But perhaps not just social from the gut, but social with some science, metrics, and real data.

Kobielus: Exactly. It has to be real data that's grounded in project objectives and in current status and delivering on those objectives.

Gardner: Tony Baer, what are we missing here? Is there some part of this equation that we're glossing over? Is there any cold water we should be pouring on here, just to be safe?

Recipe for tribalism


Baer: Oh, you read my mind on this one. I can quote from a project that my wife is currently involved with, which is basically a whole recipe for what you're talking about.

What Dion and Michael are talking about is an excellent idea in terms of that, in any type of environment where there is a lack of communication and trust, data is essential to really steer things. Data, and also assurances with risk management and protection of IT and all that. But, the fact is that there are some real clear hurdles, especially when you have what Miko talks about with tribes.

An example is this project that my wife is working on at the moment. She was brought in as a consultant to a consulting firm that's working for the client, and each of them have very different interests. This is actually in a healthcare-related situation. They're trying to do some sort of compliance effort, and whoever was the fount of wisdom there postponed the most complex part of this problem to the very end. At the very end, they basically did a Hail Mary pass bringing a few more bodies.

They didn't look for domain expertise or anything. Essentially it's like having eight women be pregnant and having them give birth to a baby in a month. That's essentially the push they are doing.

On top of that, there is also a fear among each tribe of the other coming up with a solution that makes the other tribes look bad. So, I can't tell exactly the feedback from this, but I do know that my wife came in as a process expert. She had a pretty clear view on how to untie the bottlenecks.

As soon as the project leader learned that she had this expertise, she was excluded from this, because this consulting firm was very afraid that her knowledge would make their firm look bad to the customer. In this case, they would rather risk complete failure of the project than have the firm be upstaged by someone who had been brought late in the process.

That pattern that you described there is essentially a factor about distribution of individual risk versus enterprise risk. The enterprise becomes a dumping ground for individual risk and it creates this kind of very large aggregate risk.

This is just an example of social and tribal challenges that you face. I very much agree that having a data-oriented approach and a risk management approach won't necessarily solve the problem. But, in case like this, that might be the only way out, provide cold, hard data from some neutral third-party.

Matsumura: I just want to jump in quickly and, first of all, applaud Tony Baer, the carrier of the cold water. That pattern that you described there is essentially a factor about distribution of individual risk versus enterprise risk. The enterprise becomes a dumping ground for individual risk and it creates this kind of very large aggregate risk.

Gardner: Let's take that point to Michael Krigsman. Michael, in what you're doing, are you allowing risk to be assigned? Are you be able to identify risk factors across different groups of people involved in a fairly large project? Is that part of what's going on here?

Essential elements

Krigsman: We gather a lot of data. The essential elements have been identified during this conversation. As Miko said, it's absolutely accurate to look at this tribally. Tony spoke about tribal divisions and the social tribal challenges.

The fundamental trick is how to convert this kind of trust information. Jim was talking about collaborative project governance. All of this relates to the fact that you've got various groups of people. They have their own issues, their own KPIs, and so forth. How do you service issues that could impact trust and then convert that to a form that can then be examined dispassionately. I'd love to use the word "objectively," but we all know that being objective is a goal and it's never outcome that you can ultimately reach.

At least you have a way to systematically and consistently have metrics that you can compare. And then, as Miko said, when you want to have a fight, at least you are fighting about KPIs, and you don't have people sitting in a conference room saying, "Well, my group thinks this. We believe the project 'blank.' If somebody says the same, my group thinks that." Well, let's have some common data that's collected across the various information silos and groups that we can then share and look at dispassionately.

Gardner: So, we want to get some objectivity about perception. It almost sounds like an oxymoron, but actually I think it's quite essential. Let's go back to Dion Hinchcliffe. Dion, you announced your Pragmatic Enterprise 2.0 initiative just a week or two ago. There is quite a bit of information about it on your website at Hinchcliffe & Co. Tell me a little bit about what the results are. When you bring this to bear, are they tangible results? Is there data about how well your data-driven process works?

Hinchcliffe: The way the process works is that we come into a client with an end-to-end service. Most organizations -- and this is going to be true of Enterprise 2.0 or SOA -- are looking at solving a problem. There's some reason why they think that this is going to help, but they're often not sure.

There are often a lot of unstated assumptions about how to apply technology to a business problem and what the outcome is going to be.

We start with this strategy piece that looks at the opportunity and tries to identify that for them and helps them correct the business case to understand what the return on investment (ROI) is going to be. To do that, you really have to understand what the needs of the organization are. So, one of the first things we do is bring Michael's process in, and we try and get ground truths.

There are often a lot of unstated assumptions about how to apply technology to a business problem and what the outcome is going to be. Particularly with SOA, you have so many borders that are typically involved. It's the whole concept around Conway's Law that the architecture tends to look back at the structure of the organization, because those are the boundaries in which everything runs.

One of the ways that we can assure that we have ground truth is by applying this dispassionate measurement process upfront to understand what people's expectations are, what their needs are, and what their concerns are. It's much more than just a risk-management approach. It's a way to get strategic project intelligence in a way that hasn't been possible before. We're really excited about it.

A lot of uncertainty

My specialty has always been focusing on emerging technology. There is always a lot of uncertainty, because people don't know necessarily what it is. They don't know what to expect. They have to have a way of understanding what that is, and you have an array of issues including the fact there are people who aren't willing to normally admit that they don't know things.

But, here is a way to safely and succinctly, on a regular basis, surface those issues and deal with them before they begin to have issues in the project. We then continue on through implementation and then regular assessments on the KPIs that can cause potential issues down the road. I think it's a valuable service. It's low impact, compared to another traditional interview process. This is something most organizations can afford to do on a regular basis.

Gardner: I'd like to go around our panel and get some more reaction to this.
Ron Schmelzer, the idea of this strategic project management caught my attention when Dion mentioned it. We've had lots of software products thrown at project management and portfolio management. Those don't seem to work. What's the difference between the project and portfolio management approach to some of these issues -- and what Michael Krigsman and Dion Hinchcliffe are doing with this more social inference gathering and measurement approach.

Schmelzer: I'm glad that you brought up the difference between project and portfolio management. This may be something unique in our perspective, or maybe it's becoming common. It's hard to tell when you talk to yourself a lot. We think that the whole idea of project management is just an increasing fallacy in IT anyway. There is no such thing now. It's really a discrete project.

Can you really say that some enterprise software that you maybe buying or building yourself or maybe even sourcing as a service is really completely disconnected from all the other projects that you have going on or the other technology? The answer is, they are not.

The enterprise is a collection of many different IT projects, some of which are ongoing, some of which may have been perceived to be dead or no longer in development, or maybe some are in the future.

So, it's very hard to do something like discrete project management, where you have defined set of requirements and a defined timeline and defined budget, and make the assumption or the premise, which is false, that you're not going to be impacting any of the other concurrently running projects.

We think of this like a game of pick-up sticks. The enterprise is a collection of many different IT projects, some of which are ongoing, some of which may have been perceived to be dead or no longer in development, or maybe some are in the future. The idea that you could take any one of those little projects, and manipulate them without impacting the rest of the pile is clearly becoming false.

In portfolio management you're basically managing a variety of ongoing concurrent tasks that either have budget or don't have budget and you're trying to achieve some sort of change with the least form of destruction within the business requirements and the money and the resources you have.

That's very different from this whole idea of, "Let's put together a Gantt chart. Let's throw a bunch of resources at it. Let's have some defined requirements. Let's build to it. Let's hope and pray that we're right." The industry, as a whole, is moving away from this idea of discrete IT project management.

Gardner: Joe McKendrick, thinking about discrete as something in the rear-view mirror, that means that we need to factor in cloud computing and software as a service (SaaS). They were not just going to have internal constituencies that need to be monitored and brought to some sort of a level set for understanding. We're going to have external influences, be they hosting organizations or applications that are being delivered and pulled across the wire.

How do you view the complexity of a project or portfolio management or enablement, when we're starting to bring in more and more parties to the process?

IT no longer internally focused

McKendrick: Dion, I'm an avid fan of your writings and, in particular, your ideas around web-oriented architecture (WOA), the next evolution of SOA, Enterprise 2.0, and those forces converging. I love the way you express it.

Dana is exactly right. IT is no longer an internally-focused effort. There are a lot of external factors at play. In the first stage, you have a lot of external business partners you need to expose interfaces to and you need to share information with. Right there, that dramatically increases the complexity of what you need to do.

Down the road, as you talk about cloud, you're talking about the sharing of services across enterprise borders. Everyone is going to be a producer, a publisher, or a creator of services, as well as consumers of services. It's going to be a two-way street.

There is a lot of discussion about cloud computing and the way these services will be consumed from the cloud. I don't think enough people are thinking about the services they will be producing and offering up to the cloud for others to consume. I'd be curious. Dion and Michael, do you address that in your model, in your web-based offering?

Hinchcliffe: Right now, we're going to validate some Enterprise 2.0 markets, looking at potential things as how they process. Then, of course, we'll be expanding particularly on next-generation SOA maturity. Enterprise 2.0 is getting very big right now, so that's our focus at the moment.

It needs to be much more federated, and a lot of companies, when they first took on SOA, tried to control things from a central unit.

Gardner: Sandy Rogers, another thought that I've had about this is how important governance, policy, and automation are in making SOA successful. If we have more inference information, a dashboard if you will, about the social landscape, about the buy-in or lack of buy-in from different participants in a adoption and/or execution phase of this sort of thing, can we take some of that information and then use it in the context of governance, policies, and management that are more traditional software-based SOA functions and features?

Rogers: One of the keys here is that it's a constant feedback loop of what you can automatically provide in what you are measuring and assessing, and then be able to look at that and change whether something should be standardized and should be collected.

It becomes this incremental cycle of building out that information. One of the keys that everyone is talking about here is this needs to be much more distributed. It needs to be much more federated, and a lot of companies, when they first took on SOA, tried to control things from a central unit.

When you start expanding SOA into the enterprise, especially with Enterprise 2.0, the idea of changing behaviors is something that has to start. This information that's distributed could help individuals gain knowledge and then be able to change their own behaviors.

Everyone realizes that people need to understand current state, before they can actually get to that next state, and then eventually to that ideal state. They also need to feel comfortable that in this federated approach. They may not want to share everything right-away, but incrementally contribute to the whole, and make it much more of a community.

Analysis benefit

Gardner: Michael Krigsman, we were using words like feelings and behavior. Is it fair to say that you're bringing some sort of an analysis benefit to an IT project or adoption pattern? Are we getting closer to a psychological participation project?

Krigsman: I am so hesitant to use the term psychological, because it has so many connotations associated with it. But, the fact is that we spoke about perception earlier, and there has been a lot of discussion of trust and community and collaboration. All of these issues fundamentally relate to how people work together. These are the drivers of success, and especially the drivers of lack of success on projects of every kind.

It therefore follows that, if we want our projects to be governed well and to succeed, one way or another we have to touch and look at these issues. That’s precisely what we're doing with Asuret and it’s precisely the application that we have taken with Dion into Pragmatic Enterprise 2.0. You have to deal with these issues.

Gardner: Jim Kobielus, this kind of reminds me of Star Trek: The Next Generation where there was this counselor. Deanna Troi was on the bridge with all the technicians, the leaders, drivers at warp speed, and the executive decision-makers. Is that what we need in IT, a virtual counselor along the way with us?

Kobielus: Virtual counselor? Hmm. I’ll answer that by tossing another metaphor. It really seems like the enterprise is becoming a cloud of stakeholders and interested parties that coalesces based on various needs and then scatters in the way that clouds tend to do.

The way open-source projects coalesce, certain people are first among equals, and they are the committers who defend, the general scope of common hopes and dreams.

The common denominator for getting things done in this new world is that responsibility needs to somehow precipitate out of the cloud and that certain individuals or teams take it upon themselves to get certain things done at certain times, because they recognize that things, results, need to happen.

So, virtual counselor ... I like that concept. The virtual counselor in this federated, distributed, or social-SOA governance environment. A virtual counselor is simply that person who takes command of or masters a set of channels or media -- Twitter, Facebook, blogging, and whatever else you have out there -- to be able to share all the KPIs and metrics to get others to wheedle them or cajole them to taking their responsibilities and their domains to get things done.

That person or persons will make sure there's one particular work stream within this broader project or program. This one person makes sure that certain things happen at certain times, and then gracefully, when necessary, hands off that virtual counselor post to others who pick up the baton. I'm extending metaphors here.

That’s absolutely what has to happen in a world of shifting alliances, shifting responsibilities, and shifting budgets across domains. It's like the open-source world. The way open-source projects coalesce, certain people are first among equals, and they are the committers who defend, the general scope of common hopes and dreams.

Gardner: Miko Matsumura, do you agree with my perception that this is a big step forward? In the context of a IT project or roll out, they're thinking about people’s feelings and behaviors and perceptions. It strikes me as a big step forward. Isn’t this long overdue?

Objectivity and rationality

Matsumura: About two months ago, I tweeted, "Enterprise does not need architecture. Enterprise needs psychiatrists." It does sort of preface some of this discussion. The reason I made such a point is that, the word "architecture" unfortunately implies this kind of objectivity and rationality that I, to some extent, resist when I hear words like data, rationality, objectivity, whatever.

The reason I rail against it is that the system aggregate in enterprise has in it a vicious cycle. It's not passively complex. It's not static complexity.

Ron was talking about the generation of the project management paradigm, the huge Gantt chart. Those huge Gantt charts are indicative of static complexity, and static complexity is actually not the paradigm. What Sandy was saying that I really appreciated is this notion of iteration, which is really critical.

When you get these “objective KPIs” to align organization, the next thing that happens is that organizations gain the hell out of KPIs, especially if you tie them to job review, performance evaluation, and, God forbid, bonuses.

You're going to ask people who are going to spend 40 hours a week, drilling away at ways to gain the KPIs to advantage themselves and maximize their own personal game, and it's not to say actively perverse, but essentially "to hell with everyone else."

. . . KPIs are well and good, but as soon as you institutionalize them, be ready to change them, because you will have unexpected outcomes.

The nature of the beast is such that when you encounter this kind of scenario, it's not merely this notion of lack of information or confusion. This is active perversity on an organizational and individual level. The point I'd make is that KPIs are well and good, but as soon as you institutionalize them, be ready to change them, because you will have unexpected outcomes.

Gardner: Tony Baer, last word to you. An important aspect of what Michael Krigsman and Dion are doing is that this can be anonymitized. The ability to draw inference, feelings, and perceptions from people can be done in a way that they feel empowered, that they can share their feelings without it becoming a political football or a hot potato perhaps by being anonymous. But, what you get is the insight into what the thinking is, the feelings are, the perceptions across the portfolio of participants in a project.

Does that strike you as an important factor? I want to ask you also about this counselor or analyst’s features. Do we need to bring a purple dinosaur into each SOA activity -- "I love you, you love me, let's talk about our feelings?" How do we stop being silly, but still get the benefit of this sharing going on?

Baer: I agree with you that basically that trust is really important. And, when I say trust here, it's trust in feeling that I can give information without it being used against me. No project can function in an atmosphere where everybody is just presenting basically what management wants. That eventually becomes an emperor’s new clothes situation. So obviously, I think that’s really essential.

All become counselors

I am a little cynical about the idea of a counselor, per se. I'm very much a fan of internalizing, so we all become counselors. I really like Sandy’s ideas of distributed governance, where Jim was talking about making this data-driven. I see this becoming a self-learning governance, because you can govern from the top based on assumptions that you make at the outset of a project that are totally oblivious to the conditions on the ground.

Therefore, you have to set this up so that you need to have an atmosphere of trust, where we can contribute information without fingers being pointed, and therefore names being given.

At the same time, we can then use this information to adapt. As Miko was saying, be prepared to change those KPIs, if those KPIs are not relevant. We should not be measuring to last week’s objectives, if, all of a sudden, the world has changed. So the short answer is, I agree that the anonymization is essential. I am leery about the idea of a counselor, but I am very much a very believer in everybody taking responsibility in this, and we all become counselors.

Gardner: Very good. I am afraid we’ll have to leave it there. I encourage folks to check this out. It really opened my thinking about how to make these projects more successful. It's a new dimension that I think needs to be brought in increasingly across a variety of different activities, and that would be at a business level, technology level, or a combination.

There is a lot more information available at the Hinchcliffe & Co., as well as Asuret, and of course. You can also find a lot more at the ZDNet blog that Michael Krigsman has been doing for several years now, the Project Failures blog.

I want to thank everyone for joining. We’ve been here with Dion Hinchcliffe, founder and chief technology officer at Hinchcliffe & Co. We’ve also been joined by Michael Krigsman, president and CEO of Asuret.

Please also join me in thanking our panel, Joe McKendrick, a prolific blogger and IT analyst. Thank you, Joe.

McKendrick: Thanks, Dana. Glad to be here.

Gardner: Miko Matsumura, vice president and chief strategist at Software AG. Thanks, Miko.

Matsumura: Thank you very much.

Gardner: Ron Schmelzer, managing partner at ZapThink.

Schmelzer: Muchas gracias.

Gardner: Tony Baer, senior analyst at Ovum.

Baer: Great, as always, Dana.

Gardner: Sandy Rogers, independent industry analyst. Thanks, Sandy.

Rogers: Thank you.

Gardner: Jim Kobielus, senior analyst at Forrester Research.

Kobielus: Great. I will sign off in a deep dose of alliterative English. I think it was a deep dose of domain expertise from SOA specialists.

Gardner: And I also want to thank the sponsors for the BriefingsDirect Analyst Insights Edition podcast series, Active Endpoints and TIBCO Software.

This is Dana Gardner, principal analyst at Interarbor Solutions. You've been listening to BriefingsDirect. Thanks, and come back next time.

Listen to the podcast. Find it on iTunes/iPod and Podcast.com. Download the transcript. Charter Sponsor: Active Endpoints. Also sponsored by TIBCO Software.

Special offer: Download a free, supported 30-day trial of Active Endpoint's ActiveVOS at www.activevos.com/insight.

Edited transcript of BriefingDirect Analyst Insights Edition podcast, Vol. 47 on new tools for measuring and building trust in technology adoption. Copyright Interarbor Solutions, LLC, 2005-2009. All rights reserved.

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BriefingsDirect Analysts Discuss Business Commerce Clouds: Wave of the Future or Old Wine in a New Bottle?

Edited transcript of BriefingDirect Analyst Insights Edition podcast, Vol. 46 on "business commerce clouds."

Listen to the podcast. Find it on iTunes/iPod and Podcast.com. Download the transcript. Charter Sponsor: Active Endpoints. Also sponsored by TIBCO Software.

Special offer: Download a free, supported 30-day trial of Active Endpoint's ActiveVOS at www.activevos.com/insight.

Dana Gardner: Hello, and welcome to the latest BriefingsDirect Analyst Insights Edition, Vol. 46. I'm your host and moderator Dana Gardner, principal analyst at Interarbor Solutions.

This periodic discussion and dissection of IT infrastructure related news and events, with a panel of industry analysts and guests, comes to you with the help of our charter sponsor, Active Endpoints, maker of the ActiveVOS, visual orchestration system, and through the support of TIBCO Software.

Our topic this week on BriefingsDirect Analyst Insights Edition, and it is the week of Oct. 26, 2009, centers on "business commerce clouds." As the general notion of cloud computing continues to permeate the collective IT imagination, an offshoot vision holds that multiple business-to-business (B2B) players could use the cloud approach to build extended business process ecosystems.

Under this notion, a gaggle of cloud-enabled partners could effect multiple-party services and complex processes -- all from the Internet. Business commerce clouds could produce efficiencies over traditional e-commerce processes and partnerships, and even do things -- in terms of reach, complexity, numbers of partners, and cost savings -- that had not been possible before.

It's sort of like a marketplace in the cloud on steroids, on someone else's servers, perhaps to engage on someone's business objectives, and maybe even satisfy some customers along the way.

I, for one, can imagine a dynamic, elastic, self-defining, and self-directing business-services environment that wells up around the needs of a business group or niche, and then subsides when lack of demand dictates. It's really a way to make fluid markets adapt at Internet speed, at low cost, to business requirements, as they come and go.

The concept of this business commerce cloud was solidified for me just a few weeks ago, when I spoke to Tim Minahan, chief marketing officer at Ariba. Tim and I were analysts together way back in the '90s. It seems like yesterday on some levels, and then many years ago at another.

So, I've invited Tim to join us to delve into the concept, and the possible attractions, of business commerce clouds. Welcome to the show, Tim.

Tim Minahan: Thank you, Dana. I'm pleased to be here.

Gardner: Please also join me in welcoming our IT industry analyst guests this week. We're joined by Tony Baer, senior analyst at Ovum. Hey, Tony.

Tony Baer: Hey, Dana. I'm here, and Happy Halloween everybody. Please don't make this conversation too scary.

Gardner: Alright. Brad Shimmin, principal analyst at Current Analysis is here. Hey, Brad.

Brad Shimmin: Hi, Dana.

Gardner: Also, Jason Bloomberg, managing partner at ZapThink. Howdy, Jason.

Jason Bloomberg: Hi, how is it going?

Gardner: Good. JP Morgenthal, independent analyst and IT consultant is here. Hey, JP. And making her debut, Sandy Kemsley, independent IT analyst and architect.

Sandy Kemsley: Hi, Dana. It's great to be here.

Gardner: Very good. Nice to hear from you. Let's go back to Tim. What are we really talking about here? I tried to do a setup, but it was obviously vague. "Business commerce clouds" -- what's the concept?

Leveraging cloud

Minahan: You said it nicely. When we talk about business commerce clouds, what we're talking about is leveraging the cloud architecture to go to the next level. When folks traditionally think of the cloud or technology, they think of managing their own business processes. But, as we know, if we are going to buy, sell, or manage cash, you need to do that with at least one, if not more, third parties.

The business commerce cloud leverages cloud computing to deliver three things. It delivers the business process application itself as a cloud-based or a software-as-a-service (SaaS)-based service. It delivers a community of enabled trading partners that can quickly be discovered, connected to, and enable collaboration with them.

And, the third part is around capabilities --the ability to dial up or dial down, whether it be expertise, resources, or other predefined best practice business processes -- all through the cloud.

Gardner: Tell me why Ariba is interested in this. How does this extend what they have done? And, for those of our listeners that don't know about Ariba, maybe you could give us the quick elevator pitch on it.

Minahan: Certainly. Ariba started out back in 1996 with a common mission in mind to help companies manage spend more effectively. It has since transitioned to deliver those results more efficiently by becoming a SaaS-based provider.

We realized we weren't just creating value for the buyers, but we were creating value for the sellers.

Quite simply, spend management is the holistic approach of helping you control your supply chain cost, minimize risk, and then optimize cash. Along the way, what we found was that we were connecting all these parties through a shared network that we call the Ariba Supplier Network.

We realized we weren't just creating value for the buyers, but we were creating value for the sellers. They were pushing us to develop new ways for them to create new business processes on the shared infrastructure -- things like supply chain financing, working capital management, and a simple way to discover each other and assess who their next trading partners may be.

Gardner: Tony Baer, we've talked a lot about cloud. We've heard a lot about it, often as an abstraction, often about infrastructure and development, test and dev, and storage of data. But, businesses are motivated by applications, processes -- things that get things done. Does this notion of a business commerce cloud work for you, and is it something that might be a catalyst to the whole cloud concept?

History repeats

Baer: Well, this is interesting. History really does go around in cycles. I'd like to direct a question back at Tim. I think there are some very interesting possibilities, and in certain ways this is very much an evolutionary development that began with the introduction of EDI 40 or 45 years ago, or something like that, I forget the exact date.

Actually, if you take a took at supply-chain practices among some of the more innovative sectors, especially consumer electronics, where you deal with an industry that's very volatile both by technology and consumer taste, this whole idea of virtualizing the supply chain, where different partners take on greater and greater roles in enabling each other, is very much a direct follow on to all that.

Roughly 10 years ago, when we were going though the Internet 1.0 or the dot-com revolution, we started getting into these B2B online trading hubs with the idea that we could use the Internet to dynamically connect with business partners and discover them. Part of this really seemed to go against the trend of supply-chain practice over the previous 20 years, which was really more to consolidate on a known group of partners as opposed to spontaneously connecting with them.

I'm obviously exaggerating there, but, Tim, how does this really differ, in terms of the discovery functions that you were talking about before, from these B2B clouds -- we weren't calling them clouds back then -- but these B2B trading hubs that we were talking about almost 10 years ago?

Part of this really seemed to go against the trend of supply-chain practice over the previous 20 years . . .

Minahan: That's a very good question. There are certainly similarities, but the major difference is that back then it was, "If you build it, they will come." The reality today is that they are here and they are looking for more ways to collaborate.

If you look at the Ariba Network that I mentioned before, in the past year, companies have processed $120 billion worth of purchased transactions and invoices over this network. Now, they're looking at new ways to find new trading partners -- particularly as the incidence of business bankruptcies are up -- as well as extend to new collaborations, whether it be sharing inventory or helping to manage their cash flow.

Gardner: Brad Shimmin, remaining with this "back to the future" notion, there are lots of different commerce environments out there. There has been a platform approach to it. Sometimes that's worked. When we got to the need of integration, we needed to open that up and create standards.

But now the cloud accelerates, or even heightens, this neutrality or standards requirement. Do you think that the cloud is perhaps a catalyst to moving to these ecosystems of business processes and services that will do what we couldn't do with EDI or even standards?

An enabler

Shimmin: That's a great point. I don't look at it as a catalyst, I look at it as an enabler, in a positive way. What the cloud does is allow what Tim was hinting, with more spontaneity, self-assembly, and visibility into supply chains in particular that you didn't really get before with the kind of locked down approach we had with EDI.

That's why I think you see so many of those pure-play EDI vendors like GXS, Sterling, SEEBURGER, Inovis, etc. not just opening up to the Internet, but opening up to some of the more cloudy standards like cXML and the like, and really doing a better job of behaving like we in the 2009-2010 realm expect a supply chain to behave, which is something that is much more open and much more visible.

Gardner: Sandy Kemsley, again, welcome to the show. How does this strike you as an enterprise IT architect? Is this something that appears like pie in the sky, a little too daunting, or is this something that makes you very interested?

Is it, "I would love to get some business services I can get my hands on and start crafting business processes beyond what's available for my service-oriented architecture (SOA) internally, or what I have used in terms of regular old enterprise software?"

Kemsley: I think it has huge potential, but one of the issues that I see is that so many companies are afraid to start to open up, to use external services as part of their mission-critical businesses, even though there is no evidence that a cloud-based service is any less reliable than their internal services. It's just that the failures that happen in the cloud are so much more publicized than their internal failures that there is this illusion that things in the cloud are not as stable.

There are also security concerns as well. I have been at a number of business process management (BPM) conferences in the last month, since this is conference season, and that is a recurring theme. Some of the BPM vendors are putting their products in the cloud so that you can run your external business processes purely in the cloud, and obviously connect to cloud-based services from those.

A lot of companies still have many, many problems with that from a security standpoint, even though there is no evidence that that's any less secure than what they have internally. So, although I think there is a lot of potential there, there are still some significant cultural barriers to adopting this.

Gardner: Let's go to Tim Minahan on that. Tim, what's the answer to these cultural and other inhibitors? Is there low-lying fruit -- people who would love to get out and do B2B activities? Even if there is the perception of risk, they are going to do it anyway, because it's so attractive?

Security always an issue

Minahan: First, on the security note, security has always been an issue. That was the rubric, even back to original EDI days on, "Am I going to exchange this? It's much more secure when I mail it to them."

Ultimately, when you look at the scale that a cloud or SaaS vendor has -- in many cases those that are processing large transactions right now -- the level of investment they should make around security is quite significant, more significant than not all, but most of the participants in that community.

So, that's something that continues to come up. Increasingly, and probably because of the current economic situation, more and more companies are looking to what business processes they can put in the cloud, whether it be a commerce process or talent management.

. . . The cloud provider, because of the economies of scale they have, oftentimes provides better security and can invest more in security, partitioning, and the like than many enterprises can deliver themselves.

Gardner: Tim, I think I heard you say that basically you get what you pay for. When it comes to security, if you are willing to invest, then you can get the level of security you need to do whatever it is that you need to do.

Minahan: What I'm saying is that the cloud provider, because of the economies of scale they have, oftentimes provides better security and can invest more in security, partitioning, and the like than many enterprises can deliver themselves. It's not just security. It's the other aspects of your architectural performance.

Gardner: I see. So, the cloud provider being centralized and having a methodological approach can look at the whole security picture and actually implement on it. Enterprises that are distributed, scattered, and have been working toward security from a variety of perspectives for 10, 15, or 20 years, don’t always get that opportunity to get the top-down approach?

Minahan: Exactly.

Gardner: Jason Bloomberg, what do you think about this notion of business commerce clouds, and is this something that's going to happen in the near term?

Bloomberg: I must say that I am coming at it from a skeptic's perspective. It doesn’t sound like there's anything new here. As Tony was pointing out, we were talking about this 10 years ago. There just doesn’t seem to be that much that is particularly new or different.

We're using the word "cloud" now, and we were talking about "business webs." I remember business webs were all the rage back when Ariba had their first generation of offerings, as well as Commerce One and some of the other players in that space.

Age-old challenges

The challenges then are still the challenges now. Companies don't necessarily like doing business with other organizations that they don't have established relationships with. The value proposition of the central marketplaces has been hammered out now. If you want to use one, they're already out there and they're already matured. If you don't want to use one, putting the word "cloud" on it is not going to make it any more appealing.

So, really, I'm looking for anything new or different here. It really sounds more like just old wine in new bottles. Vendors are just saying, "Let's do cloud," but, if anything, cloud is introducing more problems than solutions.

Talking about security is a bit of a red herring, because some of the cloud issues are really more broad governance issues than security issues. Two events in the last few weeks have highlighted this fact. One is the Microsoft Sidekick data loss problem, where the Sidekick mobile devices stored their data in the cloud instead of locally on their device. Microsoft dropped the ball, and the data were lost for a while. While that wasn't strictly speaking a security issue, it was a more subtle issue.

The second was where a spammer got into Amazon's EC2, and put the entire EC2 cloud environment on a spam blacklist. So one bad apple basically got all of the IP addresses for the EC2 environment on the blacklist. Again, not strictly speaking security. It's security related, but it's really more of a complex issue than that.

I predict we will have a number of other issues like that, unexpected cloud-based problems that aren't along the lines of traditional issues that we have seen, web-based security issues.

I predict we will have a number of other issues like that, unexpected cloud-based problems that aren't along the lines of traditional issues that we have seen, web-based security issues.

Everybody is familiar with denial of service (DOS) attacks and other issues like that, but we are going to have new and different kinds of issues that are going to slow down adoption of cloud, on the one hand. Then, you will also have the issue that a lot of these marketplaces are nothing new. They are already out there. They are already established, and there isn't necessarily a lot of additional advantage to be gained by buying new gear or moving to a cloud provider.

Gardner: Tim, how about that? Other than injecting the word "cloud" in here, putting some lipstick on something that already exists, what's new?

Minahan: First, I want to address the bastardization of the term "cloud." The Microsoft Sidekick example is a good one, where the cloud bigots rushed to use that as just another example of how cloud is dangerous.

Just because you store your data in a central repository that's hosted, it doesn't necessarily make it a cloud. So, I think there is some misgiving there that folks are lining up on one side of the aisle to try to dispel that.

Creating efficiencies

Second, as it applies to the cloud and the commerce cloud, what's interesting here is the new services that can be available. It's different. It's not just about discovering new trading partners. It's about creating efficiencies and more effective commerce processes with those trading partners.

I'll give you a good example. I mentioned before about the Ariba Network with $111 billion worth of transactions and invoices being transferred over this every year for the past 10 years. That gives us a lot of intelligence that new companies are coming on board.

An example would be The Receivables Exchange. Traditionally sellers, if they wanted to get their cash fast, could factor the receivables at $0.25 on the dollar. This organization recognized the value of the information that was being transacted over this network and was able to create an entirely new service.

They were able to mitigate the risk, and provide supply chain financing at a much lower basis -- somewhere between two to four percent by using the historical information on those trading relationships, as well as understanding the stability of the buyer.

What we're seeing with our customers is that the real benefits of the cloud come in three areas: productivity, agility, and innovation.

Because folks are in a shared infrastructure here that can be continually introduced, new services can be dialed up and dialed down. It's a lot different than a rigid EDI environment or just a discovery marketplace.

Gardner: Tim, isn't there also somewhat of a business model shift here? If those costs come down, as you're projecting, because of the efficiencies of cloud, then the savings can be passed along. Isn't it possible we could see something along the lines of the Apple App Store, where, all of a sudden, volume and participation go up, some sort of a network effect, due to the fact that the cost of the applications has come down quite a bit. Is there something like that going on?

Minahan: Yeah. Cost is one aspect of it. When most people talk about the benefits of the cloud, they talk about the cost discussion. What we're seeing with our customers is that the real benefits of the cloud come in three areas: productivity, agility, and innovation. I'll spend a moment on each.

When you talk about productivity, we have talked to CFOs and CIOs today who just took a lot of cost and headcount out of their operations, thanks to the downturn. All indications are that they're not going to hire them back, even when the economy rebounds. The cloud gives them an opportunity to drive efficiencies and productivity, really without adding infrastructure.

Core competence

The second area is agility, which has become a core competence for a successful business. Many companies got caught flatfooted with the downturn, and they are just gun shy to make that same mistake again. So, the cloud gives them a new way to dial up infrastructure and resources, as needed, and the flexibility to dial them down, when they don't need them.

But the last part is that the greatest benefit of all here is innovation. That's the greatest benefit of the cloud in general, but in the commerce cloud in particular, because companies are sharing their business applications, processes, and infrastructure with their trading partners. They can benefit from the innovation of the entire community.

Your analogy to iTunes is perfect. It's the ability to have the community actually develop or offer best practice process services that can be utilized by other members of the community. That's the type of thing we are beginning to see: New business processes that are built on top of the cloud, because you already have the technology, the community, and the capabilities built in.

Gardner: JP Morgenthal, you're not a cloud bigot, are you?

Morgenthal: A cloud bigot? No. My vision for the cloud is far beyond the basic economic principles, and has yet to be realized. Economic factors are just the start of the groundswell that will bring people there, but the real value won't be seen unless the community comes. Once the community comes, I think we will see some really interesting things occur.

Web services, cloud, nothing really has moved the ball forward from the real problem of two partners coming together, establishing an agreement, and doing work together.

But what I want to address with regard to this is that from 2004 through 2008, I basically had developed a platform as a service around supply chain management and warehouse management for enterprise manufacturing and retail. So, I got some inside view into how this community really works, and a lot of their needs for communicating with each other.

I'm skeptical. I was at XML Solutions as their CTO when we first started doing B2B and building up the first exchanges, and the same problems are still there. They haven’t gone away. Emerging technologies haven’t differentiated that. Web services, cloud, nothing really has moved the ball forward from the real problem of two partners coming together, establishing an agreement, and doing work together.

Putting additional information in the cloud and making value out of that add some overall value to the cost of the information or the cost of running the system, so you can derive a few things. But, ultimately, the same problems that are needed to drive a community working together, doing business together, exchanging product through an exchange are still there.

Gardner: JP, aren’t you describing a great opportunity, though, for some organization to come in and perhaps be neutral enough, where they could play the role that Apple is playing with the App Store, and attract a community of developers, participants, contributors, but also bring together the audience that can consume? It seems to me that Ariba, as well as others, have this in mind. The cloud might be a way in which that opportunity can finally be realized. Is that possible?

Not for the cloud

Morgenthal: I don't see the cloud as being the thing to realize this. This has been a vision, dream, and goal of many of these exchange environments -- WorldWide Retail Exchange, the 1.4 Exodus I believe is the one now. We've had these environments. They exist. It's not a matter of getting developers to come build anything for it.

What's being done through these environments is the exchange of money and goods. And, it's the overhead related to doing that, that makes this complex. RollStream is another startup in the area that's trying to make waves by simplifying the complexities around exchanging the partner agreements and doing the trading partner management using collaborative capabilities. Again, the real complexity is the business itself. It's not even the business processes. The data is there.

I was working with a automotive retail group that contributed their parts and excess inventory into an exchange. Everybody did that. The thing they were contributing to was about exchanging and the other groups within that same community were looking for those excess inventories and being able to purchase them.

Even that, which sort of sounds like it should have been fairly simple, was overly complex, because of the underlying business requirements around it and exchanging funds and getting paid. Technology is a means to an end. The end that's got to get fixed here isn't an app fix. It's a community fix. It's a "how business gets done" fix. Those processes are not automated. Those are human tasks.

When folks talk about cloud, they really think about the infrastructure, and what we are talking about here is a business service cloud.

Gardner: Tim, the issue here seems to be that business is tough. There has to be trust. There have to be contracts. There has got to be the exchange of funds, basically a handshake in the sky. But, that's only as good as the handshake would have been in real physical terms. What's your response to that? Are there other areas that can be automated, where those business trust issues aren’t quite as prominent?

Minahan: I totally agree. If you go back to my original statement as to what's in the cloud, I think there is some mistaking here. When folks talk about cloud, they really think about the infrastructure, and what we are talking about here is a business service cloud.

Gartner calls it the business process utility, which ultimately is a form of technology-enabled business process outsourcing. It's not just the technology. The technology or the workflow is delivered in the cloud or as a web-based service, so there is no software, hardware, etc. for the trading partners to integrate, to deploy or maintain. That was the bane of EDI private VANs.

The second component is the community. Already having an established community of trading partners who are actually conducting business and transactions is key. I agree with the statement that it comes down to the humans and the companies having established agreements. But the point is that it can be built upon a large trading network that already exists.

The last part, which I think is missing here, and that's so interesting about the business service cloud, or in this case the business commerce cloud, are the capabilities. It's the ability for either the solution provider or other third parties to deliver skills, expertise, and resources into the cloud as well as a web-based service.

It's also the information that can be garnered off the community to create new web-based services and capabilities that folks either don't have within their organization or don't have the ability or wherewithal to go out and develop and hire on their own. There is a big difference between cloud computing and these business service clouds that are growing.

Gardner: Tony Baer, it seems that our discussion today automatically went to the enterprise level, the big global 2000 type companies. What about a small to medium-sized business (SMB), an organization that perhaps didn't have the wherewithal, either through technology or budget to engage in an EDI way back when, EAI later on, or business exchanges? Is there an opportunity for the cloud to open up the addressable market for these e-commerce activities, B2B activities, to that smaller kind of company?

Same promises

Baer: It's kind of interesting. I was chuckling as you were mentioning that, because I remember that the same promises were made when the idea of Internet-based EDI came up. "Gee, this is a way to avoid the costs and overhead of proprietary value added VANs. Now, we can reduce the handshaking process, so we can get all those tier three and tier fours into electronic commerce," which at that time was defined as EDI.

I agree with you that EDI itself is several generations behind what we are talking about here. There's no question about that. There are certainly possibilities, because obviously, as you go further back up the supply chain, going toward the smaller companies, the security requirements are not always going to be as severe.

On the other hand, if they are part of a trading-hub type network -- in other words, that they are hooked into or tapped into a Toyota or something like that -- the fact they are a small company doesn't mean that they're not going to be subject to Toyota’s requirements, especially when it comes to security and other types of contractual obligations. I'll give you a mixed yes and no answer there.

For small businesses trading amongst themselves, there probably is going to be some modest upswing there, especially in terms of being able to expand themselves to address a wider market. But, there are still some real limits there, especially if they are dealing with large, let's say, tier one trading partners.

That's where I think you will see the most success with these commerce clouds -- a very specific community of like-minded suppliers and purchasers that want to get together and open their businesses up to one another.

Gardner: Brad Shimmin, you've been dealing with both SOA and collaboration issues. Is there an opportunity for these smaller companies, larger companies, or divisions within larger companies to go find themselves some workflow application in the sky? Maybe even something like Google Wave, which is now getting lots of invites. People are now starting to play around with this thing, maybe an ecosystem of contributors, developers.

Is there an opportunity for the point on the arrow to this business commerce cloud to come in the form of workflow and collaboration? Then, when you reach a point within that workflow or collaborative activity where you need some kind of a service, or product, or business partners, this cloud can be there as a resource. Maybe it can be a marketplace, auction, or exchange, where you look for the best price and the best service. What do you think about that?

Shimmin: That's a really great idea. I have a two-part answer for you. The first goes back to what Tim was saying about how this should look like Apple App Store. I agree, but that's not the full picture. The fuller picture is to look at it as a combination of that and the Amazon marketplace. That's where I think you will see the most success with these commerce clouds -- a very specific community of like-minded suppliers and purchasers that want to get together and open their businesses up to one another.

And what Tim was getting at, which is the great part of this is, is that it's unlike the Amazon-only model. I'm not talking about EC2, by the way. I'm just talking about the Amazon store itself.

Gardner: That's right. They are the front-end retail part, where you then can exchange dollars and buy from a variety of other players. So it's a B2B description of an e-commerce cloud, right?

Cost of entry

Shimmin: Right. I wanted to stay away from the whole Amazon Web Services (AWS) side of this back to the generic cloud, just talking about a like-minded group of community or a community of companies. They want to be able to come together affordably, so that the SMB can on board an exchange at an affordable rate. That's really been the problem with most of these large-scale EDI solutions in the past. It's so expensive to bring on the smaller players that they can't play.

Amazon has really solved that problem, if you look at how they run their fulfillment procedures. I see that with a combination of the iTunes idea -- those suppliers themselves contributing to that environment, that ecosystem, by building a business process that does something that's maybe specific to them. Or, maybe it's something that's generalized enough that everyone can make use of it.

That's the widgetized rendition of, "Hey, I want to on board, and I see that I've got a widget that lets me open up a certain business process and make use of it." That's the key to bringing on these smaller players and letting them actually make money more affordably than before.

The second part of that answer was about the social side of this thing. That's where I think that you really don't want to see a generic über e-commerce, cloud commerce computing site, that's supposed to be everything to all things. It's why you don't see a forum on all topics in the world. You see forums on very specific topics.

Gardner: We don't see a Wal-Mart equivalent in the B2B space, right?

Shimmin: Right. When you have that sort of like-mindedness, you have the wherewithal to collaborate. But, the problem has always been finding the right people, getting to that knowledge that people have, and getting them to open it up. That's where the social networking side of this comes in. That's where I see the big EDI guns I was talking about and the more modernized renditions opening up to this whole Google Wave notion of what collaboration means in a social networking context.

That's one key area -- being able to have the collaboration and social networking during the modeling of the processes.

What you are getting at with that kind of solution is this expertise of, "It's midnight, and I am sorry, but I do need to get this widget. Who out here has that? Let me on board you quickly, and let's fulfill my supply chain needs." Boom, presto, we are connected, and we are making money.

Gardner: Sandy Kemsley, we've been fishing around for why a cloud environment will spur on this business commerce activity. Maybe we should be looking at the social networking aspects as well. What, from your perspective, in a social networking environment for business purposes might spur on this sort of exchange-in-the cloud activity?

Kemsley: Well, Dana, I think there are two interesting sides to that. This is where I see collaboration and social networking coming to play on BPM. One is on the process discovery and modeling side, being able to collaborate with people, usually in different organizations, on what your processes are.

When you're looking at processes that include commerce aspects, if you are doing B2B between two businesses, then definitely you want to get everybody involved in modeling those processes. That's one key area -- being able to have the collaboration and social networking during the modeling of the processes.

The second is during execution. When you are executing a process, whether it's an internal process, or one that's reaching out to other companies as well. It's being able to collaborate out of step in the process in order to accomplish whatever task it is that's being assigned to you at that step. That might include calling out to people who are inside or outside your organization. Having your business processes executing in the cloud usually gives you more latitude to be able to call on people outside your own organization and to collaborate at a point in the business process.

Those are the two main areas that I see social networking coming to play with BPM.

Gardner: Let's bounce it back to Tim Minahan at Ariba. We've mentioned SMBs. Is this something for them? We've mentioned collaboration and workflow. Will those be points in the arrow to adoption? Then, we've addressed the social networking aspect. Maybe, you have some feedback on those three issues?

The community is key

Minahan: I'll start with the last here -- the core component, the commuity. What Gartner calls the business-service clouds or business process utilities, the core component of that, particularly when you are talking about inter-enterprise collaboration, is indeed the community.

We use the term "community" and not just network or VAN or something like that, because it's not just about the transaction. It's about the exchange of expertise. It's about the ability to develop affinity groups, and the ability to either resell or share best practice business processes.

We're seeing that already through the exchange that we have amongst our customers or around our solutions. We're also seeing that in a lot of the social networking communities that we participate in around the exchange of best practices. The ability to instantiate that into reusable workflows is something that's certainly coming.

Folks are always asking these days, "We hear a lot about this cloud. What business processes or technologies should we put in the cloud?" When you talk about that, the most likely ones are inter-enterprise, whether they be around commerce, talent management, or customer management, it's what happens between enterprises where a shared infrastructure makes the most sense.

Every downturn spawns the next area of innovation.

Gardner: How about those SMBs? Is this something that's right for them?

Minahan: Absolutely. Every downturn spawns the next area of innovation. In the downturn that we have gone through, look at the advantages SMBs have right now -- not to have to develop information or workflows.

If they can borrow best practices from the commerce cloud, from other large companies, get on board very, very quickly and at a much lower cost, and get engaged at a much lower cost, that's an advantage for them. They can focus on how they create the competitive differentiation instead of managing infrastructure.

Gardner: So, borrowing on a lot of cloud activities, you give away a part of the process in order to then capitalize or monetize on something else, maybe a little further down the process?

Minahan: Exactly.

Gardner: That might be of interest to the small businesses. Jason Bloomberg, going back to you, have you heard anything along the lines of the collaboration in social networking that strikes you as new? We didn't really have this social networking phenomenon 10 years ago or even five years ago. Has that changed the game at all, when it comes to these business process exchange activities?

Social networking

Bloomberg: Clearly, social networking is an important part of the story. It was one of the things that was still too immature back in the late '90s, that we saw in early part of this decade really coming to the fore. That's the key part of the story, but I wouldn't say that it's necessarily a cloud thing. Social networking is one thing, and cloud is something else.

What I hear happening on this conversation is the word "cloud" just being spread so thin that it's becoming less and less meaningful. It's easy to say, "Oh, well, a hosted-provider model like Sidekick isn't cloud computing," but most people would consider that's to be cloud computing.

Now, we were talking about business service clouds and business process clouds, and the word "cloud" is becoming so general. It's like anything that is external to enterprise is now a cloud. Oh, by the way, some internal enterprise is also a cloud. And, oh, it could be a software, and maybe it's not software. Maybe it's business process, or maybe it's something you do. Maybe it's social networking.

It's becoming such a very broad term that I think we're risking watering it down to the point that it's nothing but a cliché. I would recommend that if you're going to use the term "cloud computing," come up with a clear definition, where there is certain distinction between what is cloud computing and what is not.

The audience for this particular type of requirement is certainly looking for economies of scale, and is very good at it.

There's nothing wrong with the business marketplaces and the business web idea from the 90s, but it isn't necessarily the same thing as cloud computing, and extending the word "cloud" just waters it down to the point that it doesn't have any meaning anymore.

Gardner: I think "business commerce cliché" has quite a nice ring to it. JP Morgenthal, is this really Internet or is it not even worth bringing Internet into it? We just want to find better, faster, and cheaper ways to do commerce.

Morgenthal: You know that everybody is looking for efficiencies, and economies of scale. The audience for this particular type of requirement is certainly looking for economies of scale, and is very good at it. One of their issues to date, has been trust and not some reliance on the technologies. You've mentioned social networking. Back at Ikimbo, we had tried to introduce social networking around supply-chain management. We were starting to see some uptake before 9/11.

There probably is some merit to building secure communities of interest that allow people to communicate with their partners more effectively about what's going on in their business and their business needs and to move to a more just-in-time operation. Layout less capital expenditure. Have less inventory. Do more vendor ownership of the products and goods until they're sold.

Those are definitely areas of interest, and that can be driven by some technological change around these communities. Aa I said, we try to innovate perhaps too early. Maybe now the popularity around Enterprise 2.0 will mesh with that and business leaders will start to better understand how the two come together, versus trying to educate them. Any time you enter into a market that you need to educate, you find resistance.

Frivolous activity

By the same token, social networking also has a downside from the perspective that it's been introduced as a very frivolous activity versus a good solid business practice. Some of that may have to be undone now. You've got to do some reverse education, so to speak, to remove that frivolity from business leader's heads, around things like Facebook and Twitter, and how they impact business.

I know people who are out there helping business leaders understand and use social networking in their organizations, are going through a lot of those frustrations.

Gardner: Tim Minahan, you're our guest this week, so we'll give the last word to you. For those organizations and folks listening to the show, what should they be keeping in mind as they consider what business services and processes for pure B2B commerce activities belong in the cloud? What should they keep their eye on and how might they even get started in participating?

Minahan: When you think about the cloud, it's about the shared application instance or infrastructure that's ultimately shared among, in this case, multiple trading partners. As you mentioned before, it goes back to its primordial ooze stage. They probably backed out object-oriented architectures that became component-based architectures and SOA and are now moving toward the cloud.

When you get right down to it, it's about assembling the best business practice for your company. CIO's become much more relevant. They become business process architects.

In this case, good business processes to consider are those that go between enterprises. Go back to Willie Sutton, the bank robber. Why did he rob banks? Well, that's where the money was. Well, why do you want to focus on improving your commerce efficiencies and effectiveness. It's because that's what's required to grow your business.

Gardner: Alright. We've been joined by Tim Minahan, the CMO at Ariba. Thank you very much for joining.

Minahan: Thank you for having me.

Gardner: And, we've had our panel of IT analysts this week. Sandy Kemsley, independent IT analyst and architect. Thanks so much for joining.

Kemsley: Thanks, it was a great time.

Gardner: JP Morgenthal, independent analyst and IT consultant. Thank you, sir. Jason Bloomberg, managing partner at ZapThink. I always appreciate your input.

Bloomberg: It's been a pleasure.

Gardner: Brad Shimmin, principal analyst at Current Analysis. Thank you for joining again.

Shimmin: Thank you, Dana, and Happy Halloween everyone.

Gardner: And I hope it wasn't too spooky for you, Tony Baer, senior analyst at Ovum.

Baer: I wasn't too scared, but it was a very fascinating conversation. Thanks, Dana.

Gardner: I want to also thank our sponsors for this BriefingsDirect Analyst Insights Edition podcast, Active Endpoints and TIBCO Software.

This is Dana Gardner, principal analyst at Interarbor Solutions. Thanks for listening and come back next time.

Listen to the podcast. Find it on iTunes/iPod and Podcast.com. Download the transcript. Charter Sponsor: Active Endpoints. Also sponsored by TIBCO Software.

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Edited transcript of BriefingDirect Analyst Insights Edition podcast, Vol. 46 on "business commerce clouds." Copyright Interarbor Solutions, LLC, 2005-2009. All rights reserved.