Decomposing enterprises in the cloud

When I wrote about Fujitsu's cloud ambitions earlier this summer, I was conscious that I had omitted a key piece of context.

I had left out the information that Fujitsu's cloud strategy is not built for the world as it exists today: it anticipates a radical restructuring in the make-up of every enterprise. Its success will depend on how well Fujitsu can anticipate the speed and extent of that change as it ripples out across early movers and ultimately into the mainstream of everyday business practice.

This post aims to correct my earlier omission by outlining the thinking that underpins the strategy — an insight into the pending disaggregation of the traditional enterprise into much smaller, more specialized and often independent operating units.

In the original post I glossed over a full explanation:

Whereas today most enterprises are simply moving existing applications to IaaS platforms, Fujitsu sees those applications being supplemented or even replaced as future adoption moves up the stack ...

Enterprise demand for use of the cloud comes from line-of-business managers, not CIOs, says [Chiseki] Sagawa [corporate vice president and head of Fujitsu’s Global Software Centre]. They see the cloud as a means of rapidly assembling the applications, processes and services they need to achieve business outcomes.

"The opportunity [for Fujitsu is] quickly composing and reusing services," he explains. "To develop the next generation of Amazon at the higher level."

That describes the changes at the technology layer of business automation, but it stops short of setting out the hugely disruptive changes to the organizations themselves, as they evolve to take full advantage of what the technology enables.

Frictionless enterprise

The unsaid 'ah-ha' is that, in a connected world, enterprises don't have to be massive structures. The Fujitsu strategy resonated for me because it aligns with my own thinking about a concept I call frictionless enterprise:

Frictionless enterprise marks a total reversal from classic theories of the firm, which held that resources had to be contained within the enterprise because it incurred too much friction and cost to go outside for them.

Today, the opposite is true. It takes too much time and expense to acquire or build stuff in-house if it's already available on-demand from the cloud. The most successful, efficient organizations are those that can easily connect to and harness those cloud resources ...

Frictionless enterprise is driving the proliferation of cloud applications and services as organizations seek to access more adaptable, convenient and cost-effective business resources. It's encouraging the rise of more flexible, iterative and self-service approaches to business technology implementation, development and support.

There's a lot of overlap there with the slidedeck Fujitsu's Ian Thomas showed me when introducing the vendor's strategy in the wake of its April acquisition of RunMyProcess. Much of it was already familiar as he and I had previously discussed the topic over the two or more years we've known each other as board members of EuroCloud UK. Here's the detail.

Progressive  disaggregation

The big-picture context, shown in the image above, is a century-long process of disaggregation that began with standards-based componentization in the physical supply chain, such as the move to standard shipping containers.

The trend gathers pace with the advent of digital supply chain disaggregation, with the Web providing a standards-based platform for componentization of functions and capabilities. All the while, the transaction cost of acquiring these resources is falling dramatically, making it increasingly frictionless to go outside the enterprise to source outcomes.

Finally, increasing connectivity and digitization lead to the final step of "social supply chain disaggregation," when the platform has reached a level of maturity that enables frictionless collaboration both within and across enterprise boundaries.

This in turn leads to the rise of the 'composite business', assembled from much smaller, specialized units that are often able to come together on demand (through crowdsourcing, for example) rather than being part of, or formally contracted to, a larger enterprise.

Composite business

The evolution towards composite business is accompanied by a transformation of the building blocks that enterprises call upon to automate their operations, as shown in the image below.

Today, we're familiar with the notion of composite infrastructure services from the likes of Amazon or Google that we can access on-demand. We're beginning to get used to the notion of composite software services — such as Salesforce.com, Box or PayPal.

The next step — and the business opportunity foreseen by Fujitsu — is the availability of composite business processes that are easily adapted and customized for rapid deployment of new or improved business capabilities. Further in the future, composite business services that deliver outcomes will become prevalent — cloud-based payroll is an already existing example, but this is an early outlier.

Thus the functional capability delivered from the cloud gradually moves up the stack, out of the technology layer and into the realms of business process automation and service outcomes. As it does so, enterprises evolve into leaner, more narrowly targeted entities, literally decomposing into clusters of on-demand services that are assembled as needed rather than permanently integrated.

Timing is all

Fujitsu's strategy is to pre-empt this evolution to become the global platform of choice for "industrialized end-to-end business and IT realization." To seize that role, it must build alliances with emerging cloud providers, including SaaS vendors, business service providers and established enterprises that choose to develop services. It will also work with consultants and integrators that help enterprises reinvent themselves to make the most of the new composite business environment.

Most of all, it must become the platform of choice for enterprises that are early adopters of this new disaggregated, organizational model of on-demand composable services.

There are many potential hurdles that could get in the way of success. In this type of venture, timing is all, and I raised questions with Sagawa and his colleagues on how they see this playing out. He spoke of intermediate opportunities to help enterprises orchestrate existing services that aren't working well together. But those opportunities are a stopgap. Its ultimate success depends on how rapidly new forms of enterprise organization take hold in the real world, leveraging Fujitsu's platform and others like it.

Formidable resistance

There is formidable resistance to change. The old-fashioned structures may be running out of steam, but they are very good at perpetuating themselves (even the furniture can discourage new working practices).

A good read on this topic — and the new structures that are emerging — is the recent piece on Continuous Productivity by ex-Microsoft executive Steven Sinofsky, recently named as a partner at VC firm Andreessen Horowitz and as an advisor to collaboration vendor Box.

For example, Sinofsky discusses the ensconced role of the meeting in the traditional enterprise:

Meetings came to dominate the culture of organizations: meetings to decide what to meet about, meetings to confirm that people were on the same page, meetings to follow-up from other meetings, and so on. Management became very good at justifying meetings, the work that went into preparing, having, and following up from meetings. Power derived from holding meetings, creating follow-up items and more. The work products of meetings — the pre-reading memos, the presentations, the supporting analytics began to take on epic proportions. Staff organizations developed that shadowed the whole process ...

Similarly, paperwork processes and unreconstructed electronic replacements are clinging on in an astonishing number of organizations. Even some of diginomica's digitally savvy partners still insist that we snailmail them hard copy invoices. As Stuart Lauchlan highlighted in his report on the Policy Exchange's recommendations for digital government, there is a better way:

The thrust of Policy Exchange's thesis is to cut to the chase: eliminate all paper-based interaction within and between government departments and switch exclusively to digital channels. It states:

"Moving paper up and down the country is slow and expensive. Government should eliminate paper for interactions within and between departments, and switch exclusively to digital channels for public services that do not need a face-to-face interaction with the public. Where face-to-face contact is important it should be strengthened."

This would, estimates Policy Exchange, save the government £70 billion a year by 2020.

Old habits die hard

Another colleague's summer vacation reading on building the digital enterprise suggests that achieving change is hard. Dennis Howlett quotes Lee Bryant on organizational structure:

We have seen first-hand how easy it is for even natively digital companies to fall into old habits when growing quickly ...

The fact is, most of our company building templates are wrong, but it can be challenging and risky to create your own. But that is what you need to do if you want to create the right structures and culture to support your particular mission.

The success of Fujitsu's strategy depends on many enterprise leaders facing up to those challenges and risks — often in the teeth of resistance from middle managers, who are most disrupted by the changes being imposed.

So far, the most successful adopters of these new enterprise structures have been start-up businesses that have not had legacy cultures to overturn and indeed who have often disrupted legacy competitors. Marc Andreessen's seminal essay from two years ago, Software is eating the world, cites several examples.

But what of established enterprises? Fujitsu's Thomas is adamant that ultimately they have no choice but to change:

"What's the future for enterprises? Enterprises are big, bloated organizations that do a lot of things that they had to do because it was too difficult to find them on the open market."

Fujitsu's strategy, as Thomas articulates it, is to be there when those enterprises realize they must turn themselves into leaner, more specialized organizations that can profit by commercializing their core processes as on-demand services.

Personally I suspect Fujitsu may have to be much more proactive than that. It must take a lead in persuading enterprises to take the plunge into that transformation, otherwise most of them will continue to find reasons not to make the leap.

Disclosure: Salesforce.com is a premium partner and Box is a partner of diginomica. RunMyProcess is a former consulting client of the author. Dr Ian Thomas represents Fujitsu on the board of EuroCloud UK, where the author serves as chair. Fujitsu is a sponsor of this autumn's EuroCloud Congress.

Image credits: courtesy of Fujitsu.