Read the Introduction first.
In coming posts I will address every essential characteristic of The Cloud as defined by NIST from a perspective of the Enterprise. Unlike most cases, I will post these within the next 7 days and I certainly do hope before coming weekend.
- On-demand self-service. When online services and core systems really seamlessly integrate.
- Broad network access. When customers, partners and users are distinct groups treated equal.
- Resource pooling. When synergy across value chains makes the difference.
- Rapid elasticity. When business is extremely unpredictable.
Measured service, when business resources are limited.
Let me first start with what I witness in most organisations regarding the financial governance model. Great and small, old and new. And even in start-ups. The model is in about all cases one in which there is an annual budget allocated for pretty much everything that costs money. Often times, the budget is based on past experiences. It's a copy of last years budget corrected, or extrapolated, based on last year's developments, revenue, target met or not, etc. What I often times see, and I'm actually pretty sure I have seen this in all but one or two cases, is that once a year there is a prediction as to what the business will look like in the coming year. This is not the strategic plan, but next year's plan. There's a project portfolio, or more recently a product portfolio, that covers the coming year. Predictions are made about next year's resource needs etc.
The most common thing here is that the more resources an organisation has at its disposal, the more anal the enterprise is about these plans.
Being ambitious as a business
What I hardly ever see is a prediction of what the enterprise's ambition is with respect to its market position. Its business ambition. Do not mistake this for a strategic ambition, or a mission statement. What I am talking about is an 'objectives portfolio', an overview of the enterprise's objectives. Each of it's value chains, lines of business, P&L areas, however the enterprise's business is divided should have objectives, and ideally a roadmap littered with objectives. This is the objective-portfolio.
Why this is so important is that an enterprise should be working to meet these objectives in any way it can. And the reason why this is so important, is that these objectives are in fact the key drivers for business sustainability. From a strategy perspective, the business objectives should be completely in line to support the strategy. By working towards these objectives, the strategy is implemented, which in turn will increase sustainability.
An important key take-away is that objectives can be met in any number of ways. There is hardly ever only one way to do so. But in general, out of all the different ways to achieve an objective, there are only one or two that are the best. The best within the context of the enterprise at a specific moment. Which means that what is the best way now, might not be the best way in the next quarter. There could be a missed opportunity, new regulation, or a shortage of resources. So re-evaluating the the proper course of action continuously, should be a given.
For enterprises resources in terms of money are often not considered a bottleneck, instead I see often that the availability of the right people to do the job to be a problem and in even more cases the precious resource we call time is a problem of its own magnitude.
For smaller companies I see that often money is the issue and people and time not so much. Reason being that smaller companies tend to focus more on a limited amount of business solutions. Where enterprises are straying all over the place, small companies are equipped with laser sharp focus.
"Now where's the Measured service coming into play?", you ask.
Measuring achievements not performance
Working with a roadmap based on objectives, with a portfolio of objectives, allows for embracing the concept of validated learning, and metered funding.
Like I stated earlier, objectives are met by choosing one of many implementations, where the choice is based on the context of the moment the choice is made. For example the timing to introduce a new consumer product just ahead of the holidays. Or the introduction of a key competitor's product that will pave to way to broad market acceptance of something controversial. Or the abundance of developers that can code in specific programming language. By consciously choosing the seemingly best implementation to meet the objective, you know what to look for in order to re-evaluate that decision. Staying on track with the calendar to meet the holiday boom, monitoring market acceptance of that product, keeping an eye on Craigslist for job postings for those coders, etc.
Obviously this requires monitoring of the results of your efforts, but that is exactly what it means to apply the concept of 'validated learning'. You determine based on what your efforts are contributing to the bottom-line (whatever that is to you) or not or is even counter productive, this is your hypothesis. You undertake whatever action you've got up your sleeve and once you're done, you check your hypothesis and determine what your next move should do. It's actually pretty close to just being agile.
Turning variable into fixed
Now the trick is, and this is where it becomes extremely complicated for enterprises, to allocated resources in such a way that you can continuously work on meeting the objectives, but change the way you do so, throughout the year. From a financial planning perspective, this is rather different from most enterprises I've seen over the years. Like I stated earlier, budgets are allocated annually, based on plans. The the bigger the budget request, the more assurances need to be given to get the budgets allocated. Business Cases are written, plans are drafted, dreams are... well often the most realistic and accurate of these three.
The way I often see it addressed is by introducing pre-funded teams. Which basically means that one of the larger portions in the budget is fixed, namely human resources. In fact, this only addresses the problem when an enterprises HR strategy is relying heavily on out-sourcing, contractors or a combination of these two. When most of the work is done by own staff, HR costs are already fixed, and working with pre-funded teams is merely an HR-planning issue. I would prefer this situation, but it is often just not feasible. With pre-funded teams, a large part of the budget is fixed, which is an accountant's dream, or so I've been told on various occasions. How to fix all other variable costs? That's a challenge, but this is where a cloud environment helps, as it will not fix IT costs, but it will allow these to be limited to the bare minimum as needed, so costs are not fixed, but risk is contained and limited. Another dream coming true.
Your measured service at play here is now that for one a large chunk in the budget is no longer variable, so planning is straight forward, no measuring is really needed as the teams are based on objectives to be met and not work to be done. I understand this is the first time I phrase it this way but it is crucial to understand the different. I leave you to think about it for a second.
Measuring is needed for the remaining chunks in the budget. Although still variable, this chunk, the IT resources costs are contained and limited and investments are only needed when the IT is required. And more importantly, revenue is generated shortly after investments are done, or else further investments are stopped. So we measure the revenue, off-setting it to the limited costs.
I hope you understand the paradigm shift in the financial governance from a mainly cost driven concept where revenue is mainly a matter of wishful thinking, educated guessing at best, to mainly realised revenue based.
Re-iterating. Measured services relate to the fact that the in the cloud native enterprise, the enterprise is governed such that costs are considered investments. But only concerning those costs that can't be fixed. In other words, variable costs are considered investments. Investments are related to business objectives to be met and not work to be done. This eliminates in a large part the risk that the focus is on work already done instead of objectives still to be met when it comes to new investments.
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The text very explicitly communicates my own personal views, experiences and practices. Any similarities with the views, experiences and practices of any of my previous or current clients, customers or employers are strictly coincidental. This post is therefore my own, and I am the sole author of it and am the sole copyright holder of it.