The focus in government IT on the more complex issues surrounding cloud computing such as security, data sovereignty and business continuity risks ignoring Christensen’s thesis regarding disruptive innovation starting at the bottom of the market, not the top. At the Trans-Tasman Business Circle lunch on 24 July 2014, I will make the case for starting the cloud journey with small steps rather than giant leaps.

Image Credit: http://en.m.wikipedia.org/wiki/Disruptive_innovation

Sustaining

An innovation that does not affect existing markets.

Evolutionary

An innovation that improves a product in an existing market in ways that customers are expecting. (E.g., fuel injection)
Revolutionary (discontinuous, radical)
An innovation that is unexpected, but nevertheless does not affect existing markets. (E.g., the automobile)

Disruptive

An innovation that creates a new market by applying a different set of values, which ultimately (and unexpectedly) overtakes an existing market. (E.g., the lower priced Ford Model T)

The technologies on which cloud computing is based individually demonstrate evolutionary trends. Together, though, the combination is disruptive.

The business model enables the disruptive innovation.

The term "disruptive technology" has been widely used as a synonym of "disruptive innovation", but the latter is now preferred, because market disruption has been found to be a function usually not of technology itself but rather of its changing application. Sustaining innovations are typically innovations in technology, whereas disruptive innovations change entire markets. For example, the automobile was a revolutionary technological innovation, but it was not a disruptive innovation, because early automobiles were expensive luxury items that did not disrupt the market for horse-drawn vehicles. The market for transportation essentially remained intact until the debut of the lower priced Ford Model T in 1908.[2] The mass-produced automobile was a disruptive innovation, because it changed the transportation market. The automobile, by itself, was not.

Source: http://en.m.wikipedia.org/wiki/Disruptive_innovation

Wikipedia shows how a business model can be destroyed by a disruptive innovation.

Former market leader Encyclopædia Britannica ended print production after 244 years in 2012. Britannica's price of over $1000, its physical size of dozens of volumes, its weight of over 100 pounds, and its update cycles lasting a year or longer were all annulled by Wikipedia. Microsoft's Encarta, a 1993 entry into professionally edited digital encyclopedias, was once a major rival to Britannica but was discontinued in 2009. Wikipedia's lack of price, unlimited size and instant updates are the primary challenges for profitable competition in the consumer market.

This innovation effectively destroyed the traditional encyclopaedia business model in a manner similar to that suffered by Kodak. Kodak's evolutionary growth, while constant, could not compete with digital photography's disruptive effects.

For example, virtualisation is a key cloud technology and has been increasing across government in recent years. Scalability, standardisation, broadband ip communications are all existing technologies. No sensible IT system builder or data centre operator would not be using such technologies.

NIST cloud definition http://www.nist.gov/itl/cloud/upload/NIST_SP-500-291_Version-2_2013_June18_...

Cloud is a new way of procuring computing not just new technologies.

Christensen distinguishes between "low-end disruption" which targets customers who do not need the full performance valued by customers at the high end of the market and "new-market disruption" which targets customers who have needs that were previously unserved by existing incumbents.

"Low-end disruption" occurs when the rate at which products improve exceeds the rate at which customers can adopt the new performance. Therefore, at some point the performance of the product overshoots the needs of certain customer segments. At this point, a disruptive technology may enter the market and provide a product which has lower performance than the incumbent but which exceeds the requirements of certain segments, thereby gaining a foothold in the market.

In low-end disruption, the disruptor is focused initially on serving the least profitable customer, who is happy with a good enough product. This type of customer is not willing to pay premium for enhancements in product functionality. Once the disruptor has gained a foothold in this customer segment, it seeks to improve its profit margin. To get higher profit margins, the disruptor needs to enter the segment where the customer is willing to pay a little more for higher quality. To ensure this quality in its product, the disruptor needs to innovate. The incumbent will not do much to retain its share in a not so profitable segment, and will move up-market and focus on its more attractive customers. After a number of such encounters, the incumbent is squeezed into smaller markets than it was previously serving. And then finally the disruptive technology meets the demands of the most profitable segment and drives the established company out of the market.

"New market disruption" occurs when a product fits a new or emerging market segment that is not being served by existing incumbents in the industry.

[Also drawn from the Wikipedia article.]

The trends in government use of cloud computing are reflecting low end disruption. Cloud opportunities such as public facing web sites and test and dev sites allow low risk engagements that combine efficiencies with experience development.

http://press.ihs.com/press-release/design-supply-chain/cloud-related-spendi...

Cloud computing is growing, steadily but is not currently predicted to do so exponentially. This indicates that the disruption point is yet to be reached - however, I suspect that the predictions are not recognising the potential for disruption.

http://share.cisco.com/cloudadoption/images/CloudAdoption-en_US.jpg

Conditions for low end disruption appear possible. Medium businesses, typically more agile than large businesses are more likely to be adopting cloud. While government has some very large agencies, 80 agencies spend a total of 5% of the annual government IT spend.

NIST's views on what consumers are getting from the cloud

The range of cloud opportunities is growing with vendors large and small increasing their offerings considerably. This is reflected in the offerings under the Data Centre as a Service multi use list in which we now have over 100 vendors, offering some 1500 services.

Conditions for cloud adoption in Australia are good as shown in this report from BSA.

Summary
Australia is keen to promote cloud computing through the development and reform of relevant laws, regulations, and standards. For example, Australia has a strong commitment to international cooperation, free trade, and interoperability. Key laws are based on international models, and Australia is an active participant in the development of international standards.

Australia has up-to-date cybercrime laws and ratified the Convention on Cybercrime in late 2012. Australia also has comprehensive electronic signature and electronic commerce laws in place. In 2012 Australia passed further improvements to its existing privacy legislation, including stronger powers for the regulator.

Intellectual property laws in Australia provide a comprehensive and balanced layer of protection for cloud computing services and the digital economy. However, some uncertainty remains regarding ISP liability for copyright breaches that occur when subscribers participate in peer-to-peer sharing of copyrighted material.

In 2012 Australia dropped a long-term proposal for mandatory Internet content filtering that may have acted as a barrier for innovation in the digital economy.

Australian ICT infrastructure is reasonably well developed, and significant progress has been made in the rollout of a National Broadband Network that will provide further capacity to facilitate the digital economy.

Overall, Australia’s scorecard results remained fairly stable in the 2013 report. Improvements in the country’s security and cybercrime laws settings were offset by a small reduction in ICT infrastructure, and the country remained in 2nd place in the Scorecard rankings.

- See more at: http://cloudscorecard.bsa.org/2013/countries.html#sthash.103gJFiA.dpuf

The categories in the BSA report are shown here:

Data Privacy Security Cybercrime Intellectual Property Rights Support for Industry-Led Standards & International Harmonization of Rules Promoting Free Trade ICT Readiness, Broadband Deployment

While barriers to cloud adoption exist for government, these are understandable and being addressed. Existing contractual arrangements need to expire before now cloud arrangements can be put in place. Finance is exploring models for secure cloud with ASD. We are developing a cloud services panel to simplify procurement for agencies. Communications and Finance are involved in cloud standards activities through Standards Australia. Finance has also explored improved contract arrangements for cloud through the innovative work in the GovCMS project.

Finance is pursuing a range of cloud activities as part of its work in fulfilling the Government's pre-election commitments described in the eGovernment and Digital Economy Policy.

These are discussed in more detail on the AGICT blog http://www.finance.gov.au/category/agcto

Questions?