The Cloud and SaaS: Enabling Lean Businesses

One of the readings for this week covers the subject of lean manufacturing. The primary effect of lean manufacturing, or also known as lean thinking, is the improvement of flow. It means that products, or services, are moving faster from production to customers. This is possible because one of the principles in lean thinking is how to run production systems in a more efficient and effective way.

It might be common to think that implementing technology in businesses to improve business processes may cost a lot. Investing in hardware, purchasing proprietary software, hiring technical specialists to install or maintain the hardware/software, are just some of the cost that may add to the expenses of a business.

So can a business improve its process by implementing technology, but still cut costs? Can technology be utilized to apply lean thinking?

One of the trends in technology nowadays is cloud computing. There are companies that are offering business solutions for customers without having the need to install expensive hardware. There is even no need to install software. All of the resources are provided over the Internet, or in the “cloud”.

However, cloud computing may not be suitable for everyone. Since it operates over the Internet, it depends on an established and reliable network. There might also be some security issues, since the information is stored in the cloud.

So is cloud computing just a hype? Check out these interesting headlines from the past several months in sequential order:

• Oracle Buys Cloud-based Customer Service Company RightNow For $1.5 Billion (October 24, 2011 via techcrunch.com)
• SAP Challenges Oracle With $3.4 Billion SuccessFactors Purchase (Dec 07, 2011 via zdnet.com)
• Oracle buys Taleo in a $1.9B response to SAP (Feb. 9, 2012 via gigaom.com)

One thing that RightNow, SuccessFactors, and Taleo have in common is they all offer cloud-based services in the form of Software as a Service (SaaS). Based on the large amount of money invested by large companies such as Oracle and SAP, there must be something special in the “clouds”.

Sources:

1. Nave, Dave. “How to Compare Six Sigma, Lean and the Theory of Constraints: A Framework for choosing what’s best for your organization”. Quality Progress, March 2002, Volume 35 Number 3. American Society for Quality.
2. http://businessonmain.msn.com/browseresources/articles/itandproductivity.aspx?cp-documentid=32113199#fbid=YtKN8eXN7BF
3. http://en.wikipedia.org/wiki/Cloud_computing
4. http://techcrunch.com/2011/10/24/oracle-buys-cloud-based-customer-service-company-rightnow-for-1-5-billion/
5. http://www.zdnet.com/blog/howlett/sap-acquires-successfactors-a-first-take/3608
6. http://gigaom.com/cloud/take-that-sap-oracle-buys-taleo/

Cloud Services: Seen through the lens of ‘Product-design-influenced-by-Supply-Chain’ thought process

In class we discussed few companies that are making paradigm shift in product design owing to the supply chain processes, Ikea being the classical example. I was curious to find out if this thought process could be paralleled with IT industry. Unfortunately, nothing interesting came up in the search. Falling back to my industry experience, I recounted the supply chain issues an IT company would face when delivering its products (either software or hardware).

Let’s consider the supply chain issues of a software company:
* Multiple platforms means multiple product lines
* Standardization preferred over customization - Owing to mass distribution
* Licensing issues - Tied to PCs based on serial keys
* Version control
* Last but not the least, issue of support and service

And, for a hardware IT company issues are:
* Manufacturing, warehousing and delivery - Not to forget the usual issues seen in these operations such as forecasting, optimal resource utilization
* Convincing customers to scale up to newer and better hardwares
* Need to build backward compatible firmware upgrades
* And, yet again support and services

Cloud services (including but not limited to Software-as-a-Service) as we know is a paradigm shift in the software product design. Users pay on usage basis, often without lengthy contracts and are not necessitated to ‘own’ the software. In fact, few IT hardware vendors such as Cisco, Motorola, Juniper and Aruba (to name a few) are adapting the SaaS concept to virtualize even some of the hardware components. Thus most of the above listed supply chain pain points are either taken out from the equation or at least modified such that points of variance is reduced. And, in effect a consistent and controlled product could be delivered to customers.

Further, taking cue from the article ‘Biosphere rules’ let us analyze how moving to cloud based delivery would help the IT companies vis-a-vis traditional product delivery and maintenance (in other words ‘phasing-in-Biosphere rules’),

Think few materials: In IT terminology it would translate to fewer IT resources for development and testing. By moving to cloud based products IT companies can cut down on the development efforts on multiple platforms. For IT hardware companies by cutting down one SKU, the consumption of resources and thereby reductions in cost is self evident.
Rethink Design: Not only for the IT companies but even for the deployed company the cloud based offering will enforce new design in terms of IT infrastructure. The budgeting, infrastructure, integration and maintenance design would change and change for good.
Think scale economies: By taking the offerings into cloud, all of a sudden the product is global. And, roll out of products to customers is no more linear. Scalability is easy and more importantly with a center point control it is more controlled too.
Rethink the buyer-supplier relationship: Often the decision to chose an IT vendor is more for the reason that support and maintenance services of one vendor is better than the other, no matter how good the product is of the latter. With cloud based systems, the support services can be run from vendor’s office without having to invest on on-site support services. This would translate to better buyer-supplier relationships.
In conclusion, I think even though this wasn’t the thought process that kicked off the cloud based system paradigm but it is an interesting perspective. And, it does make sense when the developments on cloud services are looked from supply chain perspectives. We can state that the one of the motivations for cloud services were possibly to avoid the supply chain issues of traditional IT product/service delivery. Would you agree with that?