The CIO as driver of a cloud-based business

Spinning off a cloud-based business from the core business is becoming a more likely scenario. CIOs may be well-placed to drive such an initiative.

It started as a data center operation for a bank, with software on a server that provided core banking services for online and in-bank transactions occurring on a daily basis. Then one day, a group of smaller community banks approached this mid-sized bank, and asked if there were a way they could share the bank’s core transaction processing system. The rationale was simple. These very small, rural banks could not afford to pay for banking software and services on their own, so they were looking to cost-share.

 

The bank negotiated a contract for a multi-tenant license with its software provider with fees that were based on total transactions for all participating institutions. It then converted its IT staff to support a secure, multi-tenant environment for itself and the other, smaller rural banks. A cloud-based business was born.

Although this is not a typical cloud scenario for most enterprises, it is one that is beginning to occur with increased regularity.

The business case

You can cut your costs of IT operations if you can repurpose part of what you are doing without short-changing your own IT support. You do this by charging others for the use of the same services you use. In some cases, organizations simply look to “break even” so they can at least fully fund their IT operations with outside income. In other cases, they see a great profit opportunity and end up spinning off a cloud-based business that not only pays for itself, but that contributes to the bottom line.

Where does the CIO fit in all of this?

“I was the CIO at a major financial institution, and I ended up being the logical candidate to move over to a separate cloud-based spinoff because I knew the business,” said one CIO who is now heading up a cloud venture. He went on to say that his original parent company recognized that it not only needed someone savvy in IT, but also someone who understood the business of banking, the needs of customers, and the political intricacies of working with a board of directors and other stakeholders.

In other cases, however, the enterprise makes a decision to spin off a cloud-based business and chooses someone other than the resident CIO. Sometimes, this is an executive who heads up a line of business and understands the business side of the product being offered in the cloud. An enterprise can also opt to hire outside talent.

Moves like this can be disappointing to CIOs who have always dreamed of running their own business, so the best way to avoid disappointment is to prepare yourself for the possibility of running a cloud-based business.

Here are four preparatory steps that often pay off:

#1 Know your parent company’s business as well as you know IT

An enterprise is unlikely to appoint a CIO to head up a business unit if the CIO is technology-savvy only. The most qualified CIOs for startup cloud businesses growing out of enterprises not only know the business extremely well—but also have strong alliances with other C-level managers and with the board of directors. They’ve already demonstrated that they are astute and capable business executives as well as IT experts.

#2 Identify “winning” business opportunities

Often, it is CIOs who get presented with a cost-sharing idea from other organizations first. Once you get an idea that can potentially justify a business, develop a business and technology plan that confirms that the opportunity is viable. Once you are comfortable with its chances for success, share the plan informally with key decision makers in the enterprise to assess their response.

#3 Make sure you have the necessary backing

If you can’t get your enterprise stakeholders on board and enthusiastic about the idea of commercializing your cloud operation, stop right there! At a minimum, you’re going to need the board and top management behind the idea, as well as a critical mass of immediate clients so that the operation will at least break even when it starts. In this sense, an enterprise-inspired startup is different than a pure venture capital startup. The enterprise is not going to spot you three years to turn a profit!

#4 Ensure that your cloud staff is service-oriented

On the operational side, many enterprise-launched cloud operations initially struggle because IT staff is repurposed to serve outside clients as well as its customary internal users. When dealing with outside clients, staff needs professional service skills and a strong service attitude. What IT typically displays to its end users will not be good enough. The CIO must ensure from the very start of any commercial IT cloud operation that he has the staff that will provide excellent service—because clients certainly will expect it.