The use of cloud computing is on the rise among insurers, and many IT professionals see this as a threat.
"IT people are not thrilled with the rise of cloud because it is viewed as the outsourcing of work. A lot of people are still worried about the loss of equity and the loss of livelihood," says Michael Hugos, a self-anointed "CIO at Large" who led the Technology Super Session Monday afternoon at IASA 2012.
Hugos believes it's important for IT to understand that cloud is going to happen, with or without them.
"It is a fait accompli—it's already happening," he says. "The lesson for IT is that, while change is difficult, they must adapt or be swept aside. If they try to obstruct it, business will move around them just like water around a boulder in a river."
Fact vs. Fiction
A cloud computing and technology expert, former CIO, agile systems architect, IT industry columnist, and author of the book Business in the Cloud, Hugos brings insight and experience that will help separate hype versus reality in cloud computing.
"Cloud computing is the foundation of technology people use in their daily lives. It is the basis of social media and consumer IT. It is unstoppable. So, while there are security issues and other concerns that must be kept in mind, IT cannot simply try to say 'no.'"
Hugos' interactive presentation explored where and how to use cloud computing, beginning with the budgetary case for cloud. IT departments that argue cost-savings of in-house deployment are missing the point, he claims. "In the intellectual rigor around budgeting, you need to consider the indirect costs of owning your own. It may appear cheaper to own and operate systems, but people often forget to add indirect costs that accompany owning and operating in-house platforms."
Those costs include procurement and disposal, insurance, electricity and supporting infrastructure, and vendor support, among other hard-dollar line items. It also includes the opportunity cost of having capital tied up in owned systems. Cloud allows companies to pursue a flexible cost structure.
"With cloud computing and SaaS, you're not saddled with a massive infrastructure cost. Instead you have month-to-month, pay-as-you-go, cost effective structures," Hugos explains. "Also, particularly in the shorter lifecycle of today's business, how can you afford to allocate your capital to traditional purchases? We no longer have that long-term predictability. When was the last time anybody talked about a five-year plan in IT?"
Go Hybrid
From a discussion on costs, Hugos detailed the "hybrid architecture" that most insurers require to utilize cloud.
"Almost all companies are going to wind up with some sort of mix of traditional in-house and cloud-based systems. Nobody will be entirely one or the other, particularly in insurance," he says. "As a result, you need a coordinated way of interfacing house with cloud systems."
That includes creating an orchestration layer between both types of systems. However, it will be a challenge for insurers to link between slower moving in-house and rapidly evolving cloud platforms, such as social technology. Companies also need to deal with traditional concerns of performance and security, according to Hugos. "Using cloud doesn't mean opening up your systems to the world. You still need to control the borders and establish APIs with a security mindset. The key is for IT to maintain or even expand its relevance by guiding systems evolution, not obstructing it."
A Forum for Ideas, Questions
Hugos illustrated cloud deployments within insurance companies using specific examples, such as payment processing, and how IT can repurpose its skills to be part of the action. The session also featured an interactive, iterative exercise that explores how to use cloud at a typical insurer faced with a common business problem.
"We will look at a scenario of how a company that wants to launch a new product can do so by leveraging its existing expertise and skills," Hugos says.
The exercise included sketching a conceptual design for IT infrastructure and application systems to support a new venture and deciding whether and how to leverage existing systems or use cloud-based systems. It looked at how to build the proposed infrastructure and to handle common challenges, including security.
Hugos also examined cloud computing's impact on the role of the CIO. Hugos believes embracing cloud will help the role evolve into the Chief Innovation Officer.
"The main impact of cloud on IT is agility, and that directly impacts IT's ability to support innovation, with the CIO leading the charge," Hugos says. "With cloud computing allowing you to mix and match pieces of your infrastructure and an agile development approach replacing traditional waterfall, rather than spending three to nine months just studying things, you can target a 30-, 60-, or 90-day development cycle for rolling out capabilities that solve a specific business problem," Hugos explains. "You can think big, start small, and deliver quickly, all of which supports innovation."
Adapt or Else…
Speed is key to the new world of cloud, and Hugos says that IT departments need to get used to the new paradigm sooner rather than later.
"The rate of change is causing a certain amount of distress in IT—verging on panic—but the rate is not going to slow down. Cloud is poised to transform business," he says.
"IT has spent a long time telling business how things can't be done, and that has to change with cloud computing," Hugos adds. "There's a huge opportunity for IT if they learn to embrace it."
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