How To Keep Rogue Cloud Software From Making IT Irrelevant

Surveys of senior IT managers consistently show that cloud computing and software as a service (SaaS) are being tested or used for non-critical applications at fewer than half of U.S. corporations.

Those surveys are grossly inaccurate, according to many of the same analysts who conducted them, because they don’t count the business units that are buying cloud services behind IT’s back.

In 2010 only 13 percent of IT decision makers said their companies were already using external infrastructure-as-a-service (IAAS) clouds and planned to expand that use.

“The actual number was double that, and that was only talking about IAAS,” according to Galen Schreck, vice president and principal analyst at Forrester Research.

Even Schreck’s anecdotal number underestimated the gap between how many cloud apps IT thinks an organization is using and the real number, according to Frank Gillett, VP and principal analyst at Forrester.

“Informal buyers” from outside IT buy IAAS twice as often as “formal” buyers inside IT, and the informals make five times as many software buying decisions as the IT people who are supposed to be in charge, according to Forrester.

“It often comes as a big shock to the infrastructure and operations people [within IT] to find they grossly underestimated the cloud services in use at their organizations,” Schreck says. “They realize they have no idea what the application owners [in business units] and developers are up to.”

Informal buyers even have their own tech budgets. According to a Q4 2010 Forrester survey 69 percent of 3,000 business managers reserved part of their operations budgets to buy tech services directly, rather than through IT.

A June report from integrator and consultancy Avanade found that 61 percent of business and IT executives said they buy cloud services on the sly because it’s simply easier. Half said going through IT takes too long and a quarter said their company’s policies forbid them from using the services they want.

That’s not necessarily a disaster, but it can set both IT and its parent company up for one, says Susan Cramm, founder of executive career-development and strategy consultancy Valudance. Cramm is also a former CIO of Taco Bell and CFO of a smaller PepsiCo restaurant chain.

Experts say letting managers buy any service they want, when they want leaves the company bleeding money from multiple subscriptions to Salesforce and suffering “cloud sprawl”— too many separate logins, too little integration between instances of the same service and rates that are too high because subscriptions are bought one at a time rather than in bulk.

What can IT do to avert such problems? “Get out in front of the whole thing,” Gillett says.

1. Create a way for business units to get what they want.

“Agility is really a big deal on the business side in ways that it not always is in IT,” Cramm says. “So if you can show that you’re moving more quickly this year than last, and help users change more quickly, that will play a role in reducing the number of times people go outside.”

Among the value-adds that IT can bring is security. Business units pay little attention to the kinds of data they’re using on what platforms or what risk that creates, Schreck says. IT managers who can demonstrate how they can increase security without making the whole process more kludgy will get support from business managers.

Create definitions of the types of data the company uses and which can be used or shared in environments with different levels of security, adds Schreck. That will go a long way toward showing business managers that IT knows how to protect them and help expand their abilities at the same time. In short, create security and usage policies that are easy to follow and business units will go along, he says.

Providing checklists or buying-decision matrices that help business managers look at tech companies and figure which are safe to hire and which require more investigation is also a winning strategy, Cramm says.

So is letting some groups rent what they need with minimal interference from IT, she adds, such as developers, marketing teams and others that might have an intense but short-lived need for more capacity to meet project deadlines or test new products.

2. Create a (fast) procurement process.

Informal buyers are taking over big parts of the IT buying process not because they want to, but because IT isn’t giving them what they feel they need as quickly as they think they need it.

“Users are saying, ‘If we think you don’t offer good collaboration services, we can go outside for that. If you don’t have easy storage options, we can go to Dropbox. If your instant messaging is crummy, we’ll use Skype,” Schreck says. “IT doesn’t really have the ability to say ‘No’ to a lot of things anymore. Users can just go around them.”

The trick for IT is to move quickly enough to make end users feel they are making some progress, according to Sean Hackett, analyst at The 451 Group. Modify or slim down traditional procurement processes so they can support quick decisions on cloud or SAAS. That’ll keep IT in the game without giving up too much of its own prerogatives or requirements, Hackett says.

3. Cherry pick your part of the job.

Marketing isn’t just for marketing. If IT’s only role in the cloud is to take away the fun, business units will avoid IT even if it provides a real benefit, Cramm says.

The beauty of cloud is that it shifts much of the dry, technical maintenance work to vendors while leaving policy and operational responsibilities with the customer— the IT department. So don’t let cloud providers or users shove IT into the role of enforcing negative policy requirements like disk or usage quotas and maintaining internal hardware while the provider takes all the credit for the app they deliver.

Instead, have IT automate dynamic provisioning, create an app store interface through which business managers can distribute the apps they own, and provide backup, security and other insurance policies to save the day when there’s a big problem. That’s an IT department that is competing for the business of its end users, Schreck says.

4. Make it simple— and show the value.

Providing an app store-like interface offers a couple of benefits to IT. For one, it gives end users IT services that they can see and appreciate, and it’s easy for them to use, which is key to IT’s acceptance as a bona fide provider of cloud services. In addition, a properly constructed app store enables IT to itemize bills for chargeback or showback reports that track a business unit’s activity and demonstrates IT’s value.

“If you’re trying to get to a reasonable position with cloud there is a whole implementation layer that includes self service portals, tracking resource consumption and chargeback based on consumption,” says James Staten, principal analyst at Forrester Research. “That is the only way to do it without making cost monitoring and cost control much more difficult.”

5. Don’t overvalue yourself.

A potential drawback to chargeback is that building something good and then sending a big bill can seem to business managers more like extortion than cost justification, Schreck says.

IT executives whose focus is internal, rather than market-focused, may value and charge for their services based on fees that have nothing to do with what cloud providers are charging in the real world, adds Schreck. That just reinforces the idea that IT is out of touch, too expensive and too slow to deliver the specific functions business managers want, at a price they want to pay.

“A lot of clients I’ve seen charge back rates for storage, for example, that just don’t mesh with what you see outside,” Schreck says. “If I’m a developer trying to set up a pilot project and I put in a request and get a chargeback price quote that’s completely out of whack, it’s going to be very tempting to go outside.”

Oddly, showback is more common in cloud projects than with more traditional systems, but most IT departments do not make a concerted effort to make their cost/benefit clear.

While 64 percent of IT executives are tracking utilization and cost levels for cloud and virtual infrastructures, 90 percent don’t charge business units based on their consumption —a key element in the economics of cloud, according to a March report from the Worldwide Executive Council and service provider Apptio.

Half of those who track cloud costs report the cost as a lump sum to upper management, while one in five doesn’t report them at all, the report showed.