The Big Shift:

the mutual coupling of

two sets of disruptions
one in business & one in IT

ecosystems & cloud computing

Our Business Context in 5

Astounding Graphs
or depressing graphs

The return on assets (ROA) for U.S. firms has

steadily fallen to almost one-quarter of 1965 levels
Economy-wide Asset Profitability (1965-2008)
5.0%

4.7%

Return on Assets (%)

4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%

0.5%

0.0%
1965

1969

1973

1977

1981

1985

1989

1993

1997

2001

2005 2008

Return on Assets
Source: Compustat, Deloitte analysis

Similarly, the ROA performance gap between corporate winners and

losers has increased over time, with the winners barely maintaining
previous performance levels while the losers experience rapid
performance deterioration
Economy-wide Asset Profitability by quartile (1965-2008)
20%
15%

12.9%

11.0%

10%

Return On Assets (%)

5%
0%
Top Quartile

20%

1.2%

0%

-14.7%

-20%
-40%
-60%
-80%
-100%
1965

1969

1973

1977

1981

1985

1989

1993

1997

2001

2005

2008

Bottom Quartile
Source: Compustat, Deloitte analysis

years on S&P
P 500

Average Lifetime of S&P 500 Companies

However, in those same 40 years, labor productivity

has doubled - largely due to advances in technology
and business innovation.
Economy-wide labor productivity (1965-2008)
160

141

Labor Productivity

140
120
100
80
60

61

40
20
0
1965

1969

1973

1977

1981

1985

1989

1993

1997

2001

2005

2008

Source: Bureau of Labor Statistics, Deloitte analysis

The performance paradox:

ROA has dropped

in the face of increasing labor productivity
Firm performance metric trajectories (1965-2008)

1965

Present

Labor Productivity

Competitive Intensity

Return on Assets

Topple Rate

Source: Deloitte analysis

But why is this happening??

A Partial Answer
ppower has shifted to customer
brand loyalty diminishing
(global) competition increasing
creative talent is grabbing more of the rent
But I thought you implied there
was something more fundamental,
more deep structural going on, jsb.

20th Century Era Captured by Alfred Chandler

Push Economy

20th century infrastructure

roads/cars/trucks/trains/ships/airplanes

Scalable Efficiency becomes the goal.

S-curve

stable over decades.

(Few real changes in 60 years)

predictable
hierarchy
control
organizational routines
minimize variance

Organization Architectures leverage the properties

of Global Infrastructure Architectures
And stable transportation infrastructures =>
Cha dl ia firms
Chandlerian
fi
that ffocused
d on scalable
alabl efficiency
ffi i
But the 21st C infrastructure driven by the continual
exponential advances of computation, storage &
bandwidth, with no stability in sight, has consequence!!

Then, what does this say

about the need for new
organizational architectures &
institutional innovations?

For example:
in a world of increasingly rapid change,
the half life of a given stock/skill is
constantly shrinking
& the predi
predictability
tability off future needs is
increasingly less certain!

Stocks =====>(ofFlows
knowledge)

(of K assets, including IP )

pprotecting,
g,
teaching predetermined
curriculum

participating,
learning on demand

wow, are knowledge flows the new normal?

The Big Shift

Push

Pull

Stable Environments

Dynamic Environments

Knowledge Stocks

New Knowledge Flows

Knowledge Capture

Knowledge Creation

Explicit Knowledge

Tacit Knowledge

Transactions

Relationships

Zero SSum
m

Positive Sum Mindsets

Institutions driven by

Institutions driven by

(predictable/forecast-able)

(manage/protect)

(knowledge management)

scalable efficiency

(Unpredictable)

(participate in)

scalable peer learning

Key is how to participate in knowledge flows

especially on edges (firm/industry/region/gen Y,..)

Supporting & leveraging knowledge flows

(social media & relational thinking to the rescue)

social media as a new kind of

scalable architecture for scalable learning.

The Skadden Story

L
Learning
i ffrom th
the T
Twitter/FB
itt /FB generation.
ti

Social Bookmarking
Extending traditional public bookmarking:

User-specified metadata
Ability to add descriptions and comments
No hierarchical structure retrievable via tag search
Centrally stored-accessible from any browser
Shareable with others

Onomi Mitre Corporation

SAP wants to accelerate customer inspired

enhances
h
off NetWeaver

SAP Developer Network (SDN) was created as a

l
learning
i platform
l tf
and
d as an environment
i
t to
t foster
f t
interaction through forums, wikis & blogs in 2002

SAP Community Networks scale and richness have

potential for Exponential Learning
SAPCommunityNetwork
GrowthinMembers20032008E
1,600
1.4M
1 400
1,400
TotaalMembers(000)

1,200
1.0M

1,000
800

654K

600
339K

400
200

109K

0
2004

2005

2006

2007

2008E

Note: Includes SDN and the BPX Community beginning in fall 2006.
Source: SAP

An Enterprise Twitter solution emerged from

the SAP Community Network

Enterprise Social Media Experiment (ESME) Founding Members

Darren Hague*
Axon Solutions
-Architect, Java/
Scala coder
Dennis Howlett
Enterprise
Irregulars
-BPX expert
Dick Hisrich
Siemens IT
-NetWeaver expert

Anne Petteroe
Pearl Consulting
-ABAP developer,
Web/UI designer
Oliver Kohl
MIBS GmbH
-ABAP/Java
developer
Mrinal Wadhwa
Rich Internet App.
-Flex, Flash, AIR,
AJAX developer

Other participants
*Now a principal consultant for SAP

10

Mastering the art of participating in flows

helps you stay current in a world off fflux
and in that sense learn faster
but
cant you do much
more than just that?

Creation Spaces qua

Institutional & technological
Platforms environments that effectively integrate
individuals and teams
within a broader learning ecology
t engage iin challenging
to
h ll
i problems
bl
so that performance improvement accelerates
as more participants join.

11

Open Source as a
Participatory Learning Platform
The Open Source Movements:
writing
iti code
d to
t be
b read
d
engagement thru useful additions
social capital matters

Each OS community has a constitution,

dispute resolution mechanisms, culture,

open code, open system, open community discussion

Li & Fung Process Orchestrator

Logistics

Yarn
Sourcing
Korea

Logistics

Yarn
Dyeing
Thailand

Yarn
Weaving
Taiwan

Logistics

Yarn
Cutting
Bangladesh

Logistics

Logistics

Final
Assembly
Mexico

Retailing
Retailing
Distribution
Distribution
Centers
Centers
Global
Global

Zippers
Japan

Quality Control

10,000 suppliers
48 countries
ROE 30 to 50% & one million$/employee

12

Li & Fung orchestration

Learning, bootstrapping skills & knowledge creation

goods dominant logic to service dominant logic
Li & Fung PerformanceFeedback

Logistics

Yarn
Sourcing
Korea

Logistics

Yarn
Weaving
Taiwan

Yarn
Cutting
Bangladesh

Logistics

Yarn
Dyeing
Thailand

Logistics

Logistics

Final
Assembly
Mexico

Retailing
Distribution
Centers
Global

Zippers
Japan

Key: 30/30 Relational Principle

The Big Shift in IT

(from enterprise systems to clouds)

is pprecisely
y what
a is needed
d d
to support:

> unpredictable scaling needs

> distributed creation spaces/platforms

p
p
> rapid experimentation
> innovation on the edge

13

20th Century: Push Economy - Stocks

Infrastructure of roads/trucks/trains/ships/airplanes & ERP

B Sh
Big
Shift
f
21st Century: Pull Economy - Flows

complex, intersecting ecosystems

21st century
Cloud
Architectures
A
loosely coupled, highly dynamic

firms/producers
& hybrid
providers
clouds & physical infrastructures

Drivers for change will catalyze four

fundamental disruptions
Capability of existing
premise-based
platforms to meet
p

business needs
3
2
1

Disruption of
other industries

Restructuring of the IT industry

Addressing unmet needs of

business ecosystems

New delivery models

Differentiated value of
cloud providers

14

The customer segments benefiting most from this

disruption are typically cash-strapped, growing
rapidly, and lack on-premise support

Start-ups
SMBs

High growth enterprises

New delivery models

Edges of enterprises
IaaS on-demand
SaaS functionality

O
U
T
C
O
M
E

Lower up-front capital outlays

Lower fixed costs
Speed to scale

Amazons Cloud and web services (AWS)

creates an ecosystem
that enables startups to get going fast
and scale quickly.

Animoto startup
(personal MTVs)
went viral one day
y on Facebook:
scaled from 50 servers to 5000 servers
in just about a day
on the Amazon Cloud

15

Examples of SaaS services built on AWS,

Google AppEngine and Force.com
Application
Management

App Development

Business
Infrastructure Services

Storage

Business Operations
Services

Order /Payment Mgmt

Customer
Applications

Content Hosting/Delivery

Salesforce.com Extensions
App Testing

Other Business Apps

App Security

eCommerce

App Performance
Monitoring

Other Commerce Apps

Social Applications
Telephony

Business Process Mgmt

Other: eMail, Portals, Publisher Content,

Blogs, etc

A wave of lead companies are emerging that

orchestrate complex extended business process
across large diverse ecosystems of participants

Orchestrators of
business ecosystems

Addressing unmet needs of business

ecosystems

Scalable platforms accessible

by multiple parties
Security and SLA enforcement
capabilities
Enterprise ready capability

O
U
T
C
O
M
E

Ability
l to scale
l diverse
networks
Ability to facilitate
complex, long-lived
transactions

16

Rearden Commerce is an orchestrator

that needed to transform their
architecture to meet business needs
Company/Customer
p y
(b2b)
4000

Providers
160,000

Rearden
Platform

Users (b2c)
2.8 million

Partners
60

O i i l shortcomings:
Original
h t
i
Current architecture
unable to support
customers policy
No standard way of
inc rp rating vend
incorporating
vendors
rs
into platform
No way to maintain
context of an interaction

A typical scenario of a travel itinerary illustrates

some of the challenges an orchestrator faces
Short-lived
SFO

JFK

Long-lived multiple points of coordination

SFO

JFK

Flight to
ORD

Car pick
up at ORD
to Hotel
Car service
in JFK to
Manhattan
for early
dinner
meeting

Car
service
back to
JFK

Breakfast
meeting

Return
car and
back to
SFO

Lunch
meeting

If the flight to ORD was canceled:

Car service to airport from restaurant needs to be canceled
Flight to ORD must be rebooked for the next day
Hotel reservation in Chicago must be canceled
Restaurant reservation for breakfast in Chicago must be canceled
New hotel reservation in NY must be made

17

Rearden adopted a policy-based, outside-in

approach to transformed their architecture
Previous

Current

Web App

Web App

Web Server

constraint
engine

Web Server

Business
Functionality

Business
Functionality

Ecosystem
participants

Policy

Interaction
Server/Container
Functionality

Ecosystem
participants

Policy
extension
points

P li
Policy

Policy
Customers
Provider
Partners

Manually embed in code

From: Application

To: Platform

Outside-In approach provides the necessary

flexibility required of cloud computing architectures
to support a large number of participants
Architectural style today

Control
Resources
Transactions
Completion

Architectural style to
address unmet needs of
orchestrators

Inside-Out

Outside-In

One control point

Autonomous
entities

Heterogeneous

Heterogeneous
squared

Fine grained
Short-lived

Coarse grained
Long-lived

Optimistic

Pessimistic

18

As enterprises focus more on orchestration,

outside-in architecture will be needed to
support ecosystem participation
Enterprises expanding business networks

From: Enterprise

To: Ecosystem

beyond hub and spoke

Need For Scalable Workflow

Multiparty interactions, with N large
Workflows must be structured to accommodate multiple ways
to accomplish business goals so that unique party
party-specific
specific
implementations are not necessary

Control-oriented (EAI-styled) flow will not scale

Specifics of enterprise platform implementations need to stay
within the enterprise
BUT business policies must be factored out and made explicit
system or implied
Business policy buried deep in an enterprise system,
in the edge of a directed graph, restricts reusability

Externalized policy enables loosely coupled, policy

informed Interactions

19

Interaction Server Component View

InteractionServer
Constraint
i
Management
Services
Solver
Services

Constraint
Path
Execution
Services

InteractionLife
i
if
CycleManagement
Services
System
Mgmt
Services

Runtime Deployment
Mgmt
Mgmt
Services Services

ExternalServicesUsedByInteractionServer
Event
Security Persistence
Services
Notification Services
Services

Policy
Mgmt
Services

Web
Service
Registry
Services

In wave 3, emerging demands of complex

ecosystems & large scale enterprises lead to
specialized, federated cloud infrastructural services
l
Large scale
entreprise IT

Other intense,
complex computational tasks.

vertical cloud stacks start to

specialize into horizontal
layers and services.

Cloud service providers

enhance differentiation
e.g., Enterprise Data Fabric/clouds
redefining analytic architectures
(Greenplum, Aster Data, Hive, DryadLINQ)

20

In wave 4, industry specific cloud solutions will

emerge to address specific needs

Industry and
market shapers

Disruption
p
of
non IT industries

Mature,
robust
Mat
b t enterprise
t pi
architecture
Interoperability
Collaboration platforms
Leveraging scale and scope

The impact of Cloud Computing has the ability to

disrupt the structure of the healthcare industry
Support
Communities
Urgent//
Convenient care
Personal
Health
Record
Managers

Disease Specific
Providers

Personal
Health
Advisors

Fitness Providers

Patient

Prevention
Providers

Devices

Analytic Service
Providers

21

A rapidly evolving co-evolution between emerging

digital infrastructures & its industry structure
and
the structure and form of enterprises
p
&
business ecosystems more generally.
21st century
firms/producers

Cloud
Architectures
& providers

Wow this is a different world.

Thank You
And special thanks to
John Hagel & Tom Winans
Deloittes Center for Edge
Shift Index & Cloud Teams Deloitte COE

22