The transformational potential of cloud computing is widely celebrated, but what’s less appreciated is how dramatically it changes the job of chief information officer.

The transformational potential of digital business is now more widely recognized in the era of the cloud, and CIOs who demonstrate an ability to harness that potential are winning more recognition and respect as part of the senior leadership team.

However, the CIO also has less of a monopoly on IT innovation – leaders from lines of business or functional areas such as sales, marketing and human resources have been emboldened to make independent technology selection decisions if IT is slow to act. CIOs must make peace with shared decision making while still asserting the need to integrate and secure corporate data.

The cloud presents opportunities to innovate within a limited budget. Instead of identifying the best technologies to implement on corporate IT infrastructure, the new CIO seeks opportunities to use other people’s infrastructure and shortcut the technology implementation process.

However, don’t assume software automatically becomes better when it turns into cloud software – critical thinking is still required. Smart CIOs take the time to evaluate multiple paths to the cloud and determine which (if any) makes sense for a given business problem.

Many Clouds

The two big cloud categories, software-as-a-service (SaaS) and infrastructure-as-a-service (IaaS), are very different alternatives. With SaaS, you get applications without responsibility for the application infrastructure. With IaaS, you get remote access to the raw computing resources (processing, storage, database, etc.) of a remote data center, and you supply the applications.

A third option is platform-as-a-service (PaaS), which provides application infrastructure and APIs for building or extending applications. But the biggest distinction is between SaaS and everything else.

SaaS has proven to be a great model for a variety of sales, customer service, marketing and collaboration applications – to the point where alternatives not implemented in the cloud struggle to compete.

When SaaS applications for CRM came to market, they often had little if any connection to back end systems such as ERP – but they won fans anyway because the software was better than what organizations had deployed internally up to that point. Eager to get the business benefits of the software, many organizations deferred integration as an issue to worry about later.

“Later” has long since arrived, and much of the progress with cloud technology over the past decade has been in improving techniques for integration between cloud apps and internally deployed ones, as well as between multiple clouds.

The Core Remains

Where SaaS has yet to prove itself, at least with large, complex organizations, is with core enterprise applications such as ERP. Today, the SaaS ERP products that have come to market, even from established vendors like SAP and Oracle, are not as feature complete as their traditional software counterparts – for example, lacking industry-specific extensions and robust support for supply chain management.

Even as SaaS ERP improves in the coming years, CIOs must decide whether it makes sense to port their entire ERP environment onto a new platform architected to support the vendor’s subscription-based pricing. While cloud advocates often celebrate the shift from CapEx to OpEx expenditures – from buying software to renting it as a service – the CIO must decide whether following the vendor’s push to SaaS is in their organization’s best interests.

Typically, the transition is not only technical but contractual – paying all over again for software you already own. You surrender perpetual license rights in return for a perpetually recurring cloud software subscription fee. Stop paying, and your access to the software (and your data) stops.

The danger is that lock in to a closed, proprietary cloud could be even worse than lock in to closed, proprietary software.

In addition, large organizations who have studied SaaS ERP have concluded the transition would be just as expensive as their original ERP implementation.

That’s why IaaS tends to be the best way to take advantage of cloud resources in the context of ERP. In this scenario, you stick with your traditionally licensed software but deploy it in a cloud hosting environment. You get the advantages of elastic capacity and simplified operations without sacrificing ERP capabilities your business relies on.

You may phase out the use of selected ERP modules in favor of SaaS apps, but without sacrificing the core components like financial management. Migration to the cloud has been happening for some time with applications to support sales, marketing, and human resources management, all of which many organizations now define as not being part of their core ERP.

As a result, many businesses will wind up with a hybrid architecture spread across SaaS, IaaS, PaaS and internally-deployed software.

Bringing It All Together

The bounty of cloud innovation comes with its own challenges. Business leaders are less willing to settle for a second best solution just because it is an extension of a suite IT has declared “standard.” As a result, few organizations will declare themselves an “IBM shop” or an “Oracle shop,” instead sourcing the best software for any given business purpose. As a result, the number of vendors in the environment will balloon.

Integrating multiple platforms, including but not limited to cloud services, and orchestrating it into a unified architecture will be a significant technical challenge. However, the heaviest weight on the CIO’s shoulders will be the organizational challenge.

Hiring people capable of dealing with the integration and security challenges is just the beginning. Diversity of technology suppliers means vendor management becomes a huge part of the CIO’s job: more vendors to negotiate with, maintain relationships with, reevaluate and switch between over time.

So does all this add up to a change for the better? In many cases, yes – but only for those CIOs who understand how the cloud is transforming their role well enough to make the change work for them.

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