Oracle and SAP Moves Signal That Cloud-Networked Companies Are the Future

Talk is cheap. Strategic transformations by major corporations that owned the traditional IT model are not.

Much of the talk about the cloud has been aspirational. It makes sense theoretically but like CRM, RFID and other corporate information management innovations it can be expensive. And it is not without pain as people struggle to adapt to new systems.

But when the King Kong and Godzilla of IT announce their moves to adopt in ways that may cost them significantly in the short run, it suggests that they have seen the future, they intend to dominate it - and have figured out how to do so. JL

Greg Johnson comments in Wired:

Much of the discussion around the cloud in the world of corporate IT has revolved around the cloud’s economic advantages over “license and install” IT systems. Among the advantages cited: speed to deployment; faster path to value; better alignment of value to use; lower total cost of ownership; less project risk.

With the cloud, you don’t own the asset. You rent. Your service provider worries about uptime, scalability, performance, and risk, so you don’t have to. Overall, it’s a radical shift in the IT equation. Now, with enterprise software stalwarts Oracle and SAP moving full speed to the cloud space, albeit through acquisitions, and even at the risk of cannibalizing their own mainline businesses, the race has reached a fever pitch.
The cloud does provide good IT economics, and better clock speed. Corporate buyers, increasingly, understand this — and they’re course-correcting.

But we’re only in the second inning of what is likely to be one of the most exciting and transformative ball games in the history of modern IT. Cloud computing changes everything, and the implications will be dramatic, but its most profound impact will not be on reducing total cost of ownership for the software systems we have today, but rather for enabling entirely new systems — powerful, game-changing systems — that simply were not possible before.

Our corporate information systems — the systems we’ve been living with since the modern IT age began, the systems we use to track receivables and payables, manage customer relationships, optimize pricing, set inventory strategies, and streamline manufacturing — were designed for a world without an internet. They assumed little to no connectivity between or across companies. They were designed for companies, in isolation — not communities or “networks” of companies collaborating together. They were also designed for a world where a company’s interior functions were traditionally held within the firm, not “outsourced” beyond the firm. But globalization has turned companies inside out. The very functions that traditional business software was designed to automate within the firm are being outsourced beyond the firm.

Business today is global, highly distributed, dynamic, fast, and fraught with risk. Companies are under siege. They do not predict or plan well, they do not respond well, they do not pivot well. They are not lean. Many run their operations with little to no visibility to the full status of key business transactions such as orders, payments, cash flows, inventory positions, or true product costs. The data they need — a full 80% of it — resides with external partners beyond the bounds or control of their current systems.

To survive and win in their markets, companies must transform themselves from silo-based, inward-facing corporate operators to interconnected, highly agile business network orchestrators.

I’ll be more direct. The single biggest business imperative companies face today is to cross a chasm of capability that allows them to move from isolated islands of corporate processing to synchronized and orchestrating business networks. As networks, companies will sense more accurately and quickly, operate more efficiently, respond more immediately, and make far better decisions competitively. They’ll dominate their markets. The others — the silo-based companies — will perish.

Easier said than done. And that’s the rub. Companies cannot get to the other side of this capability chasm — they cannot navigate to “network land” — with their existing IT systems. To get to network land, companies must leverage newer cloud-based business-to-business (B2B) platforms designed specifically for inter-company process orchestration and collaboration on a global scale.

The good news is that the platforms are here, and they’re proven. They’re being leveraged at major companies — companies like Pfizer, and Kraft, and Caterpillar — today, and to good effect.

In supply chain and commerce, for example, where the focus is inter-company, these platforms enable far-flung partners to see and act on a common set of shared business objects and related transactions. Purchase orders, invoices, shipments, inventory flows, events, payments — these and other core objects are centralized in a common community platform so that connected partners can go to one place to update their shared picture of the value chain, and to synchronize with it.

Not an easy technology feat to pull off. But incredibly powerful and transformative for companies who are intent on crossing the chasm. Cloud-based B2B orchestration platforms put a company and its entire network on the same page. They point the community to a single version of process truth.

The future belongs to networked companies. But the IT infrastructure and systems needed to achieve network status are new and radically different — in their architecture, in their emphasis and reliance on embedded community, in their business models — from the systems we grew up with. The cloud’s greatest gift to business will not be a step function improvement in economics for the systems we’ve had, but for enabling game-changing systems that simply were not possible before. The gift will be to transform how companies operate. To transform commerce.