If you read the computer trade press, you’d get the impression that cloud computing is the next killer app. “Not so,” said Dr. Jeanne W. Ross, principal researcher at MIT Sloan’s Center for Information Systems Research. Speaking at the recent MIT Sloan 2009 CIO Symposium, Ross said that “major companies have to clean up their infrastructure before they can take advantage of cloud computing.” She added that cloud computing makes sense for emerging companies that will need to scale in a hurry.

Ross should look at what’s happening at Brady Corporation, a $500 million manufacturer and marketer of a comprehensive line of identity and protection products, including labels, signs, safety devices, and printing systems. In a recent www.enterpriseleadership.org interview, Frank M. Jaehnert, Brady’s president and CEO, described some of his company’s key cloud computing investments.

We also came across an interesting cloud computing application at the Brain & Spine Institute at Sacred Heart Hospital in Wisconsin. Dr. Kamal Thapar, a neurosurgeon and the Institute’s director, is using the country’s first SmartOR, which based on cloud computing technology.

To get some authoritative perspective about software as a service (SaaS) and cloud computing, enterpriseleadership.org turned to Jeff Kaplan, founder and managing director of THINKstrategies. His strategic consulting firm focuses entirely on the business implications of transitioning technology from a product focus to services-driven solutions. Here is what Kaplan said:

EL. Why is so cloud computing on every IT executive's mind?

JK. You can no longer justify doing business the old-fashion way of building your own systems and solutions in-house, and then trying to maintain and manage those inefficient systems on an on-going basis. The rules have changed. You need to look at how you can operate your resources more economically and with more agility. You need to reduce your cost of ownership, but you also need to improve your return on investment. Because of today's more disbursed business environment, you need to provide a services orientation, not only to your customers but also to your end users. You must provide access to resources anywhere, any time. You must get outside the four walls of the traditional data center.

EL. What advice would you give those people who have locked themselves into SAP and Oracle?

JK. Many alternatives to SAP and Oracle have proven to be enterprise class. That's the good news. For example, Salesforce.com, SuccessFactors, or a variety of other companies that have not only reached a certain level of financial stability, but have gained public market access. These companies serve large-scale enterprises. Many of the companies that don't have the background and the identity equity also have been able to penetrate the largest of enterprises. These companies are getting some recognition from the willingness of their customers to give references.

EL. Okay, so how do you divorce yourself from, say, SAP?

JK. You need to wean yourself off SAP or Oracle. It's a gradual process. You can't folk lift your way off these applications. Many folks recognize that they can get a complementary capability from vendors such as NetSuite. It recently announced winning a number of new accounts among SAP customers. NetSuite made a concerted effort to make its software compatible with SAP, the same way Salesforce.com did many years ago.

EL. What did you think of SAP's attempt to cover a cloud-based service?

JK. SAP has business by design. It's a SaaS alternative aimed at small and medium-size businesses. It offers a pay-as-you-go pricing model. The initial rollout was a limited success. SAP has been retooling it for a long time now. SAP recognizes now that people aren't just looking for a skinny down version of a traditional legacy app. They look for some features and capabilities that never existed within those former traditional applications.

EL. Will SAP lose marketplace of its traditional large enterprise customers?

JK. SAP could if it doesn't respond accordingly. This company has denied that this market has attracted both small and large enterprises. The success of Salesforce.com and Success Factors have proven that large enterprises have an interest in both SaaS and cloud computing.

EL. What changes do you need to make to your enterprise architecture if you want to move your apps to the cloud?

JK. You need to make sure that cloud computing can fit within or be compatible with those architectures, which is not necessarily a high hurdle. If you have based your architecture on service-oriented architecture (SOA), then you will be okay. Many SaaS and cloud computing capabilities also recognize SOA as the key architecture for success. The prevalance of APIs and Web services permits a certain level of integration, as well. You will find a growing assortment of third-party tool vendors, starting with two established players -- Infomatica and Pervasive -- to upstarts such as Cast Iron. These companies offer integration tools to tie SaaS solutions to both legacy applications and other SaaS solutions.

EL. Are we starting to see standards for cloud computing?

JK. There are a number of standards and initiatives. The most recent one is within the Federal Government's National Institute of Standards and Technology. There is a recognition that we have to bring some order to this marketplace. Like any new technology trends, a tug of war occurs between the various vendors who have stakes in the game, as well as customers who try to watch out for their own interests. No one has yet to set an overarching standard. Instead, organizations have tried to surround the problem and coral it into some orderliness.

EL. What integration issues might you run into when you move to Saas?

JK. Integration can often pose a challenge, especially if you look at legacy applications. For example, although you have a world of infinite customization, you must properly integrate those legacy apps with any new apps, either SaaS or any off-the-shelf app. In this case, you will run into some difficulties. You cannot get around it. Here is the good news about attempting to integrate with SaaS. Each time you update or upgrade a SaaS app, it doesn't throw off integration. Why? The SaaS application side permits a limited amount of customization. The legacy world has been fearful that implementing updates would disrupt what customizations unilaterally put in place in a single instance of the application.

EL. What is your assessment of amazon.com's cloud computing services?

JK. It's a major disruptive force in the marketplace. amazon.com has finally realized the full potential we have talked about for years but never really brought it to market. Although SaaS applications have been called on-demand, they can never be provisioned instantly. If you wanted to terminate a service, you usually had to wait to the end of a term. That could be a minimum of one year unless there was some cause otherwise. amazon.com has set a new standard of truly providing an on-demand service that allows you to turn on and turn off the resources instantly.

EL. How reliable are these cloud services?

JK. Reliability always poses a question, but it is always relative. For example, we saw outages in google.com a couple of weeks in May. These outages did not compare to the failures at amazon.com. Stuff happens. Both amazon.com and google.com need to make sure that these disruptions only happen occasionally and only for a short period. Both of these companies, as well as other companies, have to learn how to establish acceptable escalation policies and support programs. They have to do a better job of notifying customers when these instances do occur, keeping them informed about what is taking place to rectify the problem, and ensuring them that the problem does not repeat itself. Both large and small customers have become upset with both amazon.com's and google.com's lack of human-facing customer support. Both of these companies have been faceless entities with no 1-800 number to call. They are working aggressively to correct this problem. It, however, will take some time because they built their businesses to offer commodity services. They might not be able to continue to support services as a commodity. Enterprise customers won't tolerate this type of support.

EL. How will amazon.com blend its cloud computing service with its retail side?

JK. amazon.com's computing grew out of the company's e-commerce business. If you read the amazon's initial promises, the company realized that its data center operations had considerable scale, and thus, could be made available to third parties. Originally, amazon.com thought those third- parties would use resources to build upon the e-commerce proficiency of amazon.com, as opposed to generic computing they had at their disposal. E-commerce at amazon.com won't go away. It will become a vertical market. For a long time amazon.com has been trying to get people to recognize that it's not a bookseller or a merchandiser, but instead it's a distribution company. Amazon.com has modified this to say it is not only a retail distribution company but, in a sense, a computing distribution company as well. I am curious to see if there the buy pull down menu will feature computing power.

EL. Will cloud computing change a company's IT governance model?

JK. Yes, it will. For the past decade, we have been talking about IT being an in-house service provider for the entire IT Infrastructure Library (ITIL) framework. Because of cloud computing, the IT department becomes a procurement agent for third party resources sold to them on a services basis. Cloud computing minimizes some of the ITIL processes, such as release management. On the other hand, some of the SaaS and cloud computing companies will work with companies on the timing of releases. It doesn't eliminate parts of ITIL entirely. The IT department has less of a responsibility to do the release, and more of a responsibility to become a vendor management resource.

EL. Will the allocation and charge back pricing model for cloud computing turn IT into shared services?

JK. Cloud computing is really a shared services, which we talked about back in the 1970s. It's now new and improved with the evolution of technology. It reminds me of the old time-sharing model developed by key players in the aerospace industry. Because companies, such as Boeing and McDonnell Douglas, had purchased more computing power then they could really use on their own, they decided to resell that computing party to third parties. They created the business and made some money doing. EDS, however, was the real innovator in this marketplace.

EL. Many large companies have all types of IT organization structures, including centralized, decentralized, shared services, federated, and combination of all of these. Will moving your major apps to the cloud change your IT organization structure?

JK. Good question! You ultimately want to create the most efficient and economic model. Up until now, individual business units have been unilaterally acquiring SaaS and cloud computing capabilities, independent of their IT organizations. They have done this in order to meet their own needs within a corporate plan or to orchestrate a process. Because these individual point solutions have proven to be successful, the C-level suite has become more engaged by saying, 'Okay, we've discovered that this stuff works because many people within our organization use it. We need to bring some order to chaos for these reasons: to make sure there are no vulnerabilities, to reduce the likelihood of effort and contracts, to improve our purchasing power, and to improve the integration and to optimize the overall use of these applications across the various silos.

EL. Does writing a service level agreement for a cloud-based service differ from writing a SLA for an in-house system?

JK. With a SLA for an in-house system, you don't impose penalties on your IT staff. With cloud computing, you write an SLA similar to what we learned from the telecom space. Telecom SLAs were set to ensure the dial tone, and eventually the data tone. They were not put to use as best practices. The same practice applies for both SaaS and cloud computing.

The big difference between telecom, and SaaS and cloud computing is the number of multiple vendors that exist in various stages of the latter's supply chain. For example, a cloud computing service, such as amazon.com, might have a third-party independent software vendor providing connectivity. As a result, you need to understand that supply chain, and to make sure you have the appropriate SLA for each link in the supply chain.

EL. If you are going to move some of your apps to cloud computing, how should you handle server virtualization?

JK. This isn't an either or proposition. It isn't practical for companies to move everything on premise to the cloud. Companies might decide that they need to keep certain applications in house. As a result, most companies will live in a hybrid world. A virtualized architecture makes senses in plenty of places. A few years ago, SaaS or cloud computing companies offered multi-tenant solutions. Some SaaS or cloud computing companies use a virtualized approach to deliver their services. You could use a hosting company for your own virtualized resources. And you could build virtualized systems within your own data center. There is a considerable debate whether a private cloud makes sense. If you want to outsource a task to a third-party, then you can take the best practices of today's cloud computing leaders, such as amazon.com and google.com, and apply those principles to your own internal operation to establish your own private cloud. I wouldn't do this just because you don’t feel comfortable using the cloud.

Elizabeth M. Ferrarini - She is a free-lance writer and IT consultant from Boston, Massachusetts. Reach her at elizabethferrarini@yahoo.com.

Americans concerned about the state of the banking industry might just get some relief by joining a credit union. In fact, the Credit Union National Association has increased it awareness of credit unions as a viable financial alternative to banks. In the U.S., more than 92 million members belong to the 8,200 credits unions. Because credit unions are cooperatives owned by their members, they offer better rates, reduced fees, and a form of insurance similar to the FDIC.

One credit union, however, stands heads above the rest as a pioneer and leader in the field. Baxter Credit Union (BCU) began in 1981 initially to serve the financial needs of Baxter Healthcare's employees. During the 1990s, BCU expanded rapidly by merging with other credit unions, and by offering credit cards, home equity loans, prime mortgages, audio response teller, and online banking. Today, with assets of $1.5 billion and 140,000 members, BCU ranks as one of the top 100 credit unions in the U.S. BCU's key to providing first-class service to member companies, such as Cardinal Health and CDW, resides its integrated business and technology management strategy.

Enterpriseleadership.org recently sat down with Jeff Johnson, BCU's chief information officer, to talk about this credit union's business process for making and monitoring investments in technology. Here is what he had to say:

EL. How would you describe BCU's business strategy?

JJ. As a cooperative, our members own us. I am a member of this credit union. We do not have stockholders. We essentially do not report to anyone, such as a board of directors. We are not about maximizing profits to the highest degree. We aim to provide the best services and the rest rates for our membership. That sets our cultural tone.

As a Select Employee Group-based (SEG) credit union, our charter enables us to serve specific groups of employees or associations.

We seek out large, nationwide companies and try to wow their management teams into providing our services to their employees at no costs. We differ from most credit unions and certainly all of the banks. We have a very tight strategy based on servicing companies and the employees of those companies.

EL. How does your organization support the business strategy?

JJ. My department drives the message that we are not about technology, but we use it to support all aspects of the organization. We support the business strategy by having three distinct groups that focus on what key parts of the organization need to accomplish. Each group addresses a different imperative of the organization. One group supports our day-to-day operations so all of the transaction processing goes smoothly. We make sure all the members can log on to home banking and carry out their transactions. We make sure our front-line employees have access to whatever tools they need to service the membership. Another team focuses on strategy. For example, our project management office executes on the business priorities as projects and requests emerge. They do not worry about the infrastructure or worry about support. Our architecture group, which is our last group, makes sure that we make the best technology investments and that we optimize what we have bought. The technology space can spin out of control very quickly if you do not pay attention to the long-term implications of the investments you make.

EL. Do you have a physical preference or are you strictly e-commerce?

JJ. We have more than 35 service centers located across our company member sites. We determine the need for a service center based on the facility's number of employees. The majority of our transactions still come remotely whether it is through the Web, through the ATMs, through the phones, or what we call shared branching.

EL. What do you mean by shared branching?

JJ. We try to leverage what else is out there in the industry. We have something called shared branching. If you belong to a shared branching network, your members can go into other credit unions that are also a member of the shared branching network. We are very active in that. We hone things like shared branching with other technologies with the goal of pushing our own strategic direction forward.

EL. Can you describe a technology investment that helped you to differentiate yourself from your competitors?

JJ. Much cooperation exists across the credit industry. Because our strategy focuses on SEGs, we have made a couple of major technology investments. When we started expanding into new, large organizations in 2004, we created this entire branding infrastructure where we could custom brand a company as having its own credit union. Some companies do not want the Baxter Credit Union name; they want their own name. We create the Web sites, the documentation, the marketing materials, and the credit cards and debit cards. It is a great benefit for a company to provide a credit union under its name and auspices.

EL. What influence has your branded infrastructure had on the willingness of companies to join your credit union?

JJ. The first companies we signed up in 2004 would not have gone with us if we did not offer that branding capability. That was the ticket for us to get in the game. When we approach a new company, we emphasize what people want -- great service, great rates, and convenience. Technology enables all of those things. It is all about price, service, and convenience. On the other hand, our customers would have thrown us out if we did not have the right technology, but we have managed not to be in that situation.

EL. How do you measure the value of these technology investments?

JJ. We measure many of our investments on their ability to enable our strategy. If we did not have shared branching and did not build the branded infrastructure, we would have not been able to sell to most of the companies we have signed up in the past four years. We could not have done it without some of the technologies we have. Our organizational structure plays a key role here. For example, we have a team that focuses on making sure everything runs with 100 percent accuracy. No one really notices that it works. On the other hand, they certainly notice when it does not work. Just the confidence in the entire ability to deliver is important.

When it comes to measuring the effectiveness of investments, we break all of our projects into different quadrants and then we make decisions based on their quadrant. The senior management team focuses on projects in a specific quadrant. Mid-level managers will handle projects in less critical quadrants.

Before we invest too much time and money, we go through two internal review processes. We have an IT review process where we look at the architecture, and we do a total cost of ownership over the life of the asset. We do a lot of internal analysis. If we were to do this project, what would it mean from an infrastructure, cost perspective? On the business side, we go through a gated process. Once we approve the project, we go off and do a scope of the entire thing. We make sure we have a full understanding of everything the business users are asking for and then we gate it. We go back to the stakeholder and say, 'You know this project can do X. We are projecting it is going to cost Y.' They might agree or not. We then ratchet it up and cut out pieces of the scope or pairing it down. If yes, it goes on to the next level. If the answer is no, we take it back and start pairing down.

We have gone from the majority of our projects being significantly over budget to most coming in pretty close to deadline. The gating process in conjunction with the quadrant has really helped us control the overruns and the over budget part of it.                                                                                             

EL. Can you describe how you arrived at this quadrant approach to managing your investments?

JJ. Before 2006, we would look at all of our technology project requests and then try to make decisions about them holistically. We wound up having huge initiatives jumbled up with all of the mid-size initiatives. We decided to go with a four-quadrant approach, similar to what Gartner Group has.  Everything above the horizontal line is ROI positive; everything below that line is ROI negative. We put the projects either an ROI positive or an ROI negative above or below the line. On the perpendicular axis to the right, we look at things that cost more than a certain amount. The ones to the left cost less than that amount. Thus, our management team focuses on the ROI positive things in the upper right quadrant. These things will give us the biggest bang for the buck. As we move over to the left, we delegate less important ROI positive things to middle managers. These things are not large enough to make the radar screen of our senior management team.

As we go through our capital budget process, we try to break everything up into those quadrants and then we decide on our capital spend based upon that. Before investments percolate, I will bring them to the senior management team on an ad hoc basis. Having these conversations has proved to be an effective way to work through these projects before they are put on the quadrant.

EL. How would you gauge your organization's agility to respond to changes in the marketplace?

JJ. The model we have set up allows us to expand and to contract quickly. If we see many things north of the quadrant line, we can usually go out and get contractors to fulfill the projects. We also improved our agility by focusing more on project management and business analysis. We outsourced most of our applications development. The knowledge of our business and the knowledge of project management are the value elements. Applications development is a commodity.

EL. What does business impact of technology mean to you and how do you communicate it to your constituents?

JJ. Once every quarter, I look at our uptime and our transaction volumes. I also look at what our members have said about our services. That is my tactical approach to business impact. The strategic business impact is how well we are providing the services our members require. Each week, we have a meeting to discuss how well we have delivered on the business value of technology. We have not run into any problems in this area, which might sound surprising, but it is true.

EL. Do you tie technology investments to new customers or to improved processes?

JJ. As a financial institution, we have technology integrated with our day-to-day processes. If our systems go down, people cannot do their work. Technology functions as our nervous systems. It is what differentiates us. We do not break technology out that way.

EL. How has the economic downturn affected your business?

JJ. We have members who have lost their jobs or who have seen the value of their houses decline. Because we foresaw the recession, we identified many people who might have gotten into trouble. We told them that if they restructured the loan, we would reduce the fees on their loans. We have been very active to do that. I cannot tell you the number of loan workouts we have done.

EL. Are you using analytics to identify people who need to restructure their loans?

JJ. Yes. Three years ago, we had a major push to get business analytics on the fast track. Today we are doing some good analytics around credit quality. We lend people money for mortgages, not sub prime or any Alt A. We have all prime mortgages. We have not seen too many foreclosures.

EL. Have you made technology investments that turned out to be a mistake?

JJ. In 2005, we made a couple of investments that did not turn out to our satisfaction. We made the mistake of going with vendors who were first to market with their products. It was a dismal failure. Our governance process came about from these dilemmas.

Elizabeth M. Ferrarini - She is a free-lance writer and IT consultant from Boston, Massachusetts. Reach her at elizabethferrarini@yahoo.com.