The IT industry is in the midst of a major transition, driven by a list of disruptive technologies — virtualization, cloud computing, mobile computing, big data — that are combining to revolutionize the very basic concept of computing. The IT of 2020 will be as different from that of 2010 as the IT of 2010 was from that of the early 1960s, when IBM introduced the IBM 360-65.

This is both good and bad news for CIOs. Good news because IT will finally be fully integrated into the business and will be delivering tremendous measurable business value directly to the organization at all levels. And the entire infrastructure will be more closely vertically integrated, with end-user devices (laptops, tablets, smartphones) integrated to a greater degree than they are today. Bad news because the skills that IT will need on the back end are changing. On the one hand many of the things that keep the IT staff busy today are becoming more automated, and the traditional silos of storage, networking, and processing are breaking down under the onslaught of virtualization. But in some ways the back end will become more complex and challenging, although the skill sets will change.

More than that, the basic concepts under which IT has operated are shifting. CIOs need to be business people first and technicians second. So if you do not have an MBA, consider getting one. Of course this is not news for large enterprise CIOs, but this is increasingly going to be true in SMBs as well. Your CEO will expect IT functionality to be delivered as sets of services and priced by the drink, just as SaaS vendors operate. Business users and their managers do not really see IT as applications, and they cannot relate the cost of new network switches or servers to business value. What they do understand are specific services at specific prices. And today if you do not talk to them in that language, and if you cannot relate those prices to the business value they deliver, you will find yourself replaced either by someone who can or more likely by a set of SaaS services which do present themselves in exactly that fashion. That is the lesson of Salesforce.com. It is important to remember that only 20% of the DP heads of 1960 held onto their jobs in 1970.

And like it or not, we have no choice but to embrace this future, because the future of your company depends on it. The new IT which delivers services wherever they are needed, to whomever needs them, on whatever device — laptop, smartphone, tablet, perhaps some new end-user device that has yet to be envisioned — will provide such large competitive advantage that in many cases companies will not be able to compete without them.

What makes this revolution different is that rather than either providing some marginal business advantage to some often very large enterprises at considerable financial investment, like the early ERP systems, or an operational cost reduction that again often applies first and foremost to large enterprises, this revolution offers both increased business services and savings. And it applies to businesses of almost any size and every vertical. And furthermore this revolution will be driven by the demands of customers who expect your business to provide the goods and services they want immediately, in a way that is most convenient to them, and at the price they want. And if you cannot do that they will search the Internet for someone who can. And it will be demanded by your senior management, who are asking why you can’t deliver the information they need on demand to their tablets the way the personal services they use do, and the way SaaS services increasingly are doing.

And the benefits are there for companies of all sizes. For many small businesses this means getting out of the IT business with all its distractions entirely. What business advantage does a dry cleaner, auto repair shop, hotel, law office, etc., gain from a data center? They are better off contracting with SaaS providers for their functionality and with a local consultant to manage their WiFi network and point-of-sale terminals, and trading in their office computers for tablets that almost never need service.

For medium sized businesses the question will be what IT services provide unique competitive advantage not available from the cloud or that has such critical QoS requirements that it cannot be trusted to even a very high speed Internet connection, and possibly what data is so secret and vital to the business that it cannot be trusted to a cloud service. However the security question works both ways, and often the cloud vendors can provide better security than in-house IT at lower cost. Everything else is a candidate for SaaS.

And SaaS vendors also have built-in cost advantages in the SMB market that can make them compelling. In IT bigger is more efficient. By bundling the computing demands of large numbers of customers on one server and software installation and spreading the cost of a highly competent staff over those users, an SaaS vendor can usually provide equivalent service to its clients at a significantly lower cost per user, per actual use than even the most efficient internal shop can achieve.

The picture for large enterprises is less clear cut. Their data centers are already usually at maximum size, and they usually already have highly skilled expert staffs. So for their core IT processes, they usually can deliver services at or below the cost of the SaaS vendor. This of course presumes that the internal shop is highly efficient, which these days means that it is aggressively virtualizing its environment and moving toward an internal cloud environment. However, even in the largest shops, peripheral applications may run at less than optimal loads and some services may demand skills that are unavailable internally. And large enterprises can leverage SaaS and IaaS services to solve specific business problems. I will discuss some use cases in a future article.

Organizations should not move into the cloud helter skelter. This migration requires a well thought-out strategy, which I will outline in future installments in this series. The first step, however, is to gain some experience. And the best way to do that, if you are not already using SaaS, is to identify an application that is peripheral to your business but still used, preferably by IT itself, and start shopping for SaaS services that could replace it. You should get a good handle on the total cost per user including licensing fees, some idea of power consumption, etc., of the internal software and the hardware it runs on to facilitate a cost comparison. But the purpose of this exercise is to get hands on experience working with a third-party provider and receiving computer functionality via the Internet. So cost should not by itself be the deciding issue, and the real choice should not be internal versus SaaS but rather which SaaS vendor to use, although for negotiating reasons you should not tell the vendor that.

Services Angle

Like it or not, SaaS and IaaS will play an increasing role in business IT. And these public cloud services will provide the model for how internal IT packages and presents its services to the business. On the back end, even mid-sized companies that retain an internal IT organization will be virtualizing their data centers and creating internal clouds, just as large enterprises are doing, and will run more like the cloud service vendors do. The first step is to start thinking of IT in terms of services delivered to the business rather than as technical pieces – network switches, software, servers, storage racks, etc.