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March 23, 2017
Information Insight

From Problem Prevention to Solution Innovation: The Cloud

If you’ve explored the work of Daniel Kahneman, you may have found yourself wondering about the nature of certainty in an unhealthy amount. In his Nobel Prize winning body of work, we are confronted with evidence corroborating what we already know but sometimes are too scared to admit –that humans make the same mistakes over and over again. Kahneman’s work as a psychologist is focused on understanding errors in human judgement that are caused by consistent hiccups in the machinery of cognition, rather than the type of errors induced by changes to our emotional state. Knowledge of the first type may be especially impactful to those who are making strategic decisions about large organizations. In the world of high-impact decision making, mistakes have big consequences. This is the world of strategy.

If we define ‘strategy’ as the process of putting your team in a winning position, then it is a topic that has been of interest to humans for millennia. I’d like to present a case as to why I believe that it is in every company’s strategic interest to develop and expand their cloud capabilities. Specifically, I’ll address how the developing world of cloud services and solutions can offer decision makers reprieve from the real costs of uncertainty.

It’s a mistake to think of integrating cloud services, or migrating current infrastructure to Amazon Web Services (AWS) or Azure, as merely a choice of technology; migration and integration hardly encapsulate the strategic opportunities of rethinking, rebuilding, and enhancing work-flows across the enterprise. Amazon’s branding of its annual cloud conference ‘re:Invent’ forebodes an epoch of strategic change for businesses all across the globe. Delivery of IT services via a cloud delivery program is not just a matter of taste –there are many consequences that will impact your business’s ability to put itself in a competitive position, especially against those who have already begun to embrace Cloud Services as part of the fabric of their solutions.

The numbers suggest adoption of Cloud Services is accelerating. An article on CIO.com estimates the size of the public cloud market has grown nearly 70% over the last two years. With a little more research, we find that Amazon Web Services, the business unit responsible for generating 71% of Amazon’s operating income, was able to cut prices of different services seven times in Q4 of 2016. Over the last few years, we have seen many companies begin to build their cloud services capability by instantiating development and test environments on hosted environments. We think that trend will continue, and in 2017, we will see companies migrate more and more production services to some form of a cloud delivery model.

The Availability Heuristic

I’d like to briefly expound on one insight from Kahneman to help better explain my argument; what Kahneman calls the availability heuristic. This is a mental shortcut we take when making decisions by associating personal experiences or more commonly-observed scenarios to inform our ultimate decision, because these are more easily available to us. This applies to what Kahneman calls the judgment of frequency, or making estimates for the probability or frequency of an event. For example, Kahneman’s work shows that if you were to ask someone whether they have read more fiction or non-fiction books in the last 10 years, their answer would be heavily influenced by the genre of their most recent reads.

Now that you have an idea of how the availability heuristic influences our results, let’s think through a case where a company’s strategic leadership might be particularly susceptible.

Use Case: Solution Innovation

One strategic responsibility for any company is to ensure they are able to acquire the inputs and materials necessary to solve business problems. In today’s business environment, this means procuring computing power, digital storage, and network capabilities among other things. The exercise of identifying the capabilities necessary to create solutions to the universe of problems that a business might confront, invites the availability heuristic right through the front door. This set of problems is abstract in nature, but the closer we can get to the set of problems that will actually occur, the more of a strategic advantage you will have gained.

Let’s say that you have an incredible forecast rate of 80% (which means you correctly predict 8/10 problems that will occur). But now the success of your company could rest on the outcome of those two misses. Are you The Home Depot missing out on the sale of two washing machines, because your forecasted numbers were slightly off in Jacksonville? Or are you Blockbuster Video missing the expansion into digital streaming?

Despite our best efforts, we are going to be wrong some of the time, and unfortunately this can happen a lot of the time. In the face of these limitations, we might pursue a different line of questioning –what is the best strategy to mitigate the cost of being wrong? What can we do now to minimize the impact of our future failures? In this thought experiment, we must divest some of our focus from problem prevention and invest in solution innovation.

Cloud computing enables on-demand access to a pool of public (or private) and configurable computing resources. These resources can be quickly provisioned, and because cloud delivery models only require you to pay for the resources you use, the full cost of a solution will depend on the scale of deployment. Developers working closely with the business gain the ability to create small batch, scalable solutions for extremely low cost. Furthermore, you can adopt an approach where value isn’t the result of an event, rather value is created by the process of iterating and examining the features of a solution using a closed feedback loop and deploying what works and throwing out what doesn’t. Companies immediately benefit from shortening the time-to-value horizons. The story of Netflix embracing cloud services is a great example of the benefits realized from embarking on this journey (listen to Netflix’s Cloud Architect Adrian Cockcroft discuss their journey here).

Another strategic advantage is realized by outsourcing maintenance to vendors who are more efficient providing those services, which is especially helpful if you are realizing growth and your forecasted capacity requirements will prove to be low. Here we see how the public cloud facilitated the extreme global growth of some of our favorite services like Uber, Netflix, and Salesforce.com.

To combat the impact of unknown disruptions, the events we leave out of our mental models, we can explore opportunities to re-engineer the process of solution innovation itself. An IT organization that can deliver services via a cloud model will allow their companies to attack these innovation opportunities from many different angles.

This might mean examining the value proposition of enabling Cloud Access to an organization’s development workflows to encourage cloud computing skills to take root organically within the IT space. It could mean pursuing opportunities to virtualize the processing and storage of large datasets; saving researchers time, and allowing their insights to add value on a shorter horizon. Or it might mean you’re a small company, and you don’t want to deal with the headaches of owning your own email server anymore.

Kenway is here to help. If you’d like to learn more about how we are helping companies embrace Cloud technologies, or if you’d just like to find out more about who we are and how we think, please reach out at info@kenwayconsulting.com.

For More Learning: Podcasts, books, and articles that helped inform this viewpoint

a16z: All About Microservices

An interview from September 2016 discussing the cloud journey Netflix felt it had to embrace to become a global leader in streaming services

Thinking Fast and Slow

Daniel Kahneman’s attempt to consolidate his 40-years of work on human’s mental shortcuts when faced with uncertainty

The Undoing Project

Michael Lewis’ narrative on Daniel Kahneman and Amos Tversky’s friendship and how their ideas on judgement and decision making is becoming a major influence in the world of high-stakes decision making including business and sports.

6 Trends that will shape cloud computing in 2017

Article summarizing the likely trends in cloud computing for the upcoming year

Amazon Web Services posts $3.5B in sales, up 47% from last year, reaches $14B annual run rate

Report on current state (2016) of Amazon’s cloud products (AWS)

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