August 11, 2010

For all the talk of cloud computing in the marketplace, banks are taking a decidedly deliberate approach. Not that they don't see the benefit of adopting these emerging technologies and services -- on the contrary, banks are smitten with the notion of driving down costs and increasing IT flexibility. But once IT executives start studying what it takes to "do cloud right," it becomes apparent that a fundamental change in how IT happens may be in the offing. And that's not something to jump into hastily.

This transformation likely will occur over the next five to 10 years, at an accelerating rate. Many firms already have laid a lot of the groundwork with aggressive data center consolidation, virtualization and outsourcing initiatives. But as one senior infrastructure executive at a bank told me, "Amazon Web Services has raised the bar so high and so fast that we [the central IT function] are under real pressure from internal users to deliver what Amazon offers in some comparable form as to functionality and cost. That won't happen overnight."

There is real intent among industry leaders -- who have been gathering in various forums to share ideas -- to exploit the opportunities represented by implementing secure, compliant, cost-effective cloud capabilities. In order to get there in an orderly fashion, banks are developing vetted, coherent cloud strategies that address three primary areas: workload migration, IT service management infrastructure and external resource leverage.

Workload Migration

Which workloads are candidates for early migration to a cloud option? Firms have different answers, but generally they use the same variables to do their prioritization:

  • Commodity vs. Strategic. Are the resources I am expending to provide this service helping the business create competitive advantage or simply delivering a base level of functionality needed to operate?
  • Level of Criticality. Is the service I am providing something that we could stand to have disrupted for a minute? An hour? A day?
  • Compatibility. Do my application infrastructure and operational requirements lend themselves to cloud? What would have to change to support it? Does the workload have special security, availability or legal requirements that eliminate the cloud?

Areas that come up over and over as prime candidates for cloud migration include development and testing, CRM and HR apps, collaboration (e.g., e-mail, Wikis, blogs and virtual meetings), and storage and archiving (excluding sensitive customer data). These workloads, which can be reliably offloaded to commodity infrastructures (with appropriate service-level agreements, or SLAs), are generally considered to be the "low-hanging fruit."

IT Service Management Infrastructure

How "cloud ready" is the firm with regard to a service management infrastructure? Does the firm have a set of processes and technologies that position it for migration to the cloud, especially in candidate areas?

Most banks have an ongoing focus on building a standardized, automated environment because of the obvious benefits to the overall functioning of IT. But engaging in these activities with an eye toward future cloud projects is important. Many people think that adopting cloud technology will reduce the need for systems management. The opposite is true: Systems management will become increasingly important as they adopt cloud solutions. One bank executive told me his bank is writing containers for everything that may one day be pushed out to the cloud. This increases the flexibility of deployment and facilitates a less complex service management environment.

The standardization inherent in a service management infrastructure also plays an important role in the interaction with vendors. There is still a lot of work to do before off-the-shelf solutions are available with standardized attributes relating to security and regulatory compliance. Part of banks' cloud strategy includes understanding where there is work to be done, both internally and externally, and what certifications and SLAs are needed.

External Resource Leverage

Where will the line be drawn between internally provided cloud capabilities and external resources? Firms have moved beyond the notion that cost is paramount when looking for external partners. It has been said that, "Innovation is not where you look for ROI -- it's where you create new businesses." Cloud computing will be instrumental in enabling new business opportunities, accelerating speed to market and optimizing costs. Developing the right external partnerships is a critical component of any bank's cloud strategy.

External resources go beyond technology and service vendors. They also include industry associations, peer groups and standards bodies. To build an effective cloud strategy, IT leaders need an understanding of the role each of these entities plays. Firms should account for these efforts and even handicap them to determine how effective they will be (and when) in accomplishing community goals.

Workload migration, service management infrastructure and external resource management are more about planning, organizing and analyzing than they are about building. And that's really the underlying message here. Traditionally IT has been moving from a build toward a buy strategy; cloud represents a transformation of that strategy to a build versus buy versus rent question. The key to this is a paradigm shift in IT management. As one infrastructure executive puts it, "Our cloud strategy is as much about organizational change as it is about technology."

Julio Gomez is cofounder of Innovation Councils, which builds networks of IT leaders focused on key technology issues. Previously he founded Gomez Markets, a strategy consulting firm specializing in financial services technology, and was global head of research at Financial Insights/IDC.