Hybrid Cloud and the Future of Enterprise IT

Unlike most of the blog posts we do, this post is about the business of IT. As part of our jobs, we spend a great deal of time talking to customers about their transition to the cloud. While most of our customers are planning this journey, the underlying business changes are not well understood and many customers are struggling with the transition. This article is intended to provide guidance about this transition and to share our experiences with the larger enterprise IT market. Note that this is a summary of our session at VMworld which you can watch here.

One of the most common questions we get from customers is “How do I move to the cloud?” Unfortunately, the question that really needs to be asked first is “Why should I move to cloud?”

As in most things, the ‘why’ question largely informs the ‘how’ question. For example, if you ask me which car you should buy, I’ll probably ask you what you want to use the car for: Do you have kids? Is price a major consideration? Etc. The same applies to any IT decision you make; are you moving to cloud to save money? Is this responding to business requirement to move more quickly? These ‘why’ questions will commonly result in a different ‘how’ response.

Unfortunately, ‘why’ questions can be complicated to answer. Often there are conflicting answers to what should be a simple question within an organization. Because of this complexity, it may be helpful to take a step back and think about the way your IT investments are managed. One tool you may want to use is the IT Portfolio Management concept from Cranfield School of Management in the UK. Considering the scale of IT spend for most companies, it makes sense to manage this investment in a similar manner to managing a stock portfolio where the goal is to ensure appropriate investment IT programs, policies and technologies to support business.

In the diagram above, the four quadrants represent four archetypes of IT investment. In reality, there is a huge amount of variability, but the concept is to help group similar investments into buckets. The left side represents investments that contribute directly to our present business, helping the business drive revenue or increase competitiveness. The right side is for investments that don’t contribute because they are commodity items (i.e. no real business advantage) or they are still speculative. The top of the chart represents the future business advantage that investments offer and the bottom half represents investments that aren’t likely to significantly improve over time.

Using this graph, four quadrants are created:

  • High Potential: Investments that may contribute to the business’ future but have not yet done so.
  • Strategic: Investments that currently contribute to the business and are likely to add more value in the future.
  • Key Operational: Investments that are contributing to the business right now but have limited future growth potential.
  • Support: Essential actions but are not necessarily adding business value and are unlikely to do so in the future.
  • Normally, we talk about these four quadrants in this order because technology tends to enter a business at the top (High Potential) and work its way down to Support over time.
  • An example of this effect is the ATM. When the ATM was first introduced in the 1960s, it wasn’t a sure thing. In fact, the first few ATM deployments failed. These investments were highly speculative and banks were not sure if this would really work out in the long term. Over time, the introduction of the mag stripe card with a PIN allowed them to offer 24-hour cash and this became a key feature. As the promise of the ATM became apparent, it moved to the Strategic quadrant and banks went on crash programs to adopt the ATM. Over time, the functionality in ATMs evened out and most banks adopted them. They moved to Key Operational because ATMs became essential to be a bank but they weren’t adding a competitive advantage since all banks had them. Later, the rise of independent ATM networks meant that not every bank needed ATMs. This caused them to move to the Support quadrant, as some banks removed their ATM business entirely. Interestingly, you can still see these different strategies in play today. Some banks like Bank of America consider the ATM Key Operational and are continuing to invest, while others like ING that don’t have branches treat the ATM as Support because they are largely outsourced.

    When looking into your own organization, you will most likely see the same pattern. For example, a few years ago Public Cloud was considered High Potential for most enterprise IT shops. Public Cloud had potential, but nobody really knew exactly how to best use it. Now it has moved to Strategic for many companies and they are rushing the transition to Cloud.

    While it’s easy to see Cloud in general and Public Cloud in particular as important to our industry, what’s often overlooked is the cyclical nature of technology adoption. What is Strategic today won’t be Strategic tomorrow because other organizations will likely adopt the same trajectory. Once everyone is using the same technology, you lose business advantage and it just becomes another standard business cost.

    Another way to think about this is to map your organization’s different projects into this matrix. You can then start making infrastructure and operational choices that align to business requirements.

    Traditionally, enterprise IT has focused on a mission of cost containment. That is to say, most current and legacy systems are “Cost Optimized.” How can we get the most functionality for the lowest cost?


    However, if you think about IT portfolio management, that is not the correct strategy all the time – it depends on where you are on the matrix. For example, if you are working on a High Potential project, there is no point in cost optimizing your investment because its importance can’t be gauged yet. The best strategy is to move quickly so you can evaluate its value going forward. Similarly, if something is highly strategic, trying to limit costs will simply reduce the business benefit without real gain. This creates the notion of projects being “above the line” or “below the line.” If a project is above the line, you may want to consider a velocity-optimized approach rather than a cost-optimized approach.

    If you think about virtualized infrastructure vs. cloud, this comparison fits very neatly. Traditionally, virtualization was a very cost-effective way to manage on-premise assets. However, these on-premise assets are not as flexible as cloud-based infrastructures and a cost vs. velocity decision had to be made.


    A highly stable, cost-efficient, on-premise infrastructure like vSphere makes sense when you are running Key Operational workloads like your Teller application. On the other hand, if you are developing an entirely new machine learning system to evaluate loan risks, you may want to move to something more agile like PaaS or IaaS. Similarly, many companies are adopting SaaS-based systems for Support workloads like email or file and print.

    Interestingly, this leaves a gap in the “Strategic” quadrant. While you want strategic workloads to be agile and responsive to change, they need to be reliable to ensure business stability. Strategic systems may rely on legacy systems that can’t easily move to the cloud. Further, you should expect that some of these strategic workloads will eventually become Key Operational so you should make design decisions that will allow you to easily move from one platform to another.

    This gap between on-premise and normal public cloud offerings is one reason why we developed VMware Cloud on AWS (VMC) in the way we did. VMC has the ability to move very quickly; a new server can be deployed in about ten minutes, or an entire Software Defined Data Center (SDDC) in about two hours. On the other hand, it’s the same platform that you run on premise so workloads can easily move up to the cloud or back down as required.

    In fact, VMware Cloud on AWS is the ONLY hybrid cloud offering that bridges this gap completely. As a managed service, we take all the responsibility for running your SDDC so you can make sure your strategic workloads are deployed when and where they need to be. Capacity on demand means that you don’t have to plan in advance but reserved instances mean you can contain costs for baseline workloads. It’s the inherent balance between cost and agility that makes VMware Cloud on AWS unique and extremely well suited for Strategic workloads.

    Armed with portfolio management as a key tool, we firmly believe that IT organizations who consider how their current investments align (or misalign) with their business goals, are best placed to thrive in the cloud era.

    About the Authors

    Alex Jauch

    Group Product Manager at VMware

    Alex is a long time enterprise software guy with a focus on Cloud.  Today, Alex is a Group Product Manager in the VMware on AWS team at VMware.  Previously, he worked within the vSphere business unit on Software Defined Storage.  Prior to VMware, Alex worked at NetApp where he was the lead architect for the NetApp Private Cloud solution team.  He is the author of “Why We Fail” which is about Enterprise Private Cloud adoption.  Alex has worked for several Fortune 500 companies in a variety of Program Management, Consulting and Architectural roles including a twelve-year stint at Microsoft.

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