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Friday, February 13, 2009

IBM's Blue Cloud Meets Juniper To Alleviate Cloud Computing Adoption Fears

Security and lack of an acceptable SLA are customers' top adoption fears to move to cloud computing. IBM's recent announcements to further advance their cloud computing initiative known as Blue Cloud should help alleviate these fears to some extent. IBM announced their partnership with Juniper for their hybrid cloud initiative to provide secured private cloud with better SLA. IBM also announced new offerings for the cloud - Tivoli storage as service and a new set of cloud management tools to align with what a typical CIO would look for when migrating to the cloud. In addition IBM is pushing some of their existing offerings on the cloud that customers can now use off Amazon's EC2 on pay-as-you-go subscription model.

IBM has been experimenting with the concept of a private cloud for a while. One of such experiments included creating a private virtual cloud inside the firewall to deploy some of the regions of SecondLife with seamless navigation in and out of the firewall. The partnership with Juniper to leverage its EX series MPLS switch would allow IBM to have better QoS from Layer 2 to Layer 4. In simpler words, MPLS switch would allow the network operators to have much better control over what kind of data can be routed across what paths across private and public clouds based on dynamic network conditions such as congestion, failure etc. ensuring predictable SLA. This should alleviate some of the security concerns of the customers who want to stay on a private cloud and want a better SLA. IBM is in great position to offer tiered SLA due to the hybrid nature of their cloud deployment.

So, what about Juniper?

Juniper has been competing with Cisco since its inception and has lately struggled to differentiate. Last year Juniper made a splash by announcing a data center infrastructure solution with the EX series switches and the SRX dynamic appliance. Juniper's partnership with IBM is an introduction of a networking player into the cloud computing game that will give Cisco and others run for their money. Cisco's Nexus switch and the data center offering, HP's networking switch Pro Curve, and now Juniper's partnership with IBM are signs of vendors looking for adjacent market potential essentially blurring the boundaries
between data center infrastructure, networking hardware, and traditional storage. The vendors are eager to ensure their presence in the evolving "cloudware" category by leveraging existing investment and customer-base with partnership opportunities.

Thursday, February 5, 2009

Demystifying Sales Pipeline Crystal Ball - Risk Management With VaR And Black Swans

“If you put a gun to my head and asked me what my firm’s risk was, I would use VaR.” - said Richard Bookstaber, a hedge-fund risk manager. New York times has a long article on the role of VaR in risk management (bugmenot for nytimes) that includes the arguments on both the sides. Simply put Value At Risk, known as VaR, is a mathematical framework based on many underlying models that quantifies the risk into single dollar figure with 99% probability. Firm managers really like this number since they can measure individual trader's risk and the total risk of the firm. People such as Nassim Nicholas Taleb who are against VaR passionately argue that not being able to measure the impact of the last 1% could result into catastrophic losses under Black Swan events. He argues that people cannot predict and measure the risk using a model for the events that they have not seen in their lifetimes but the events that do occur in their lifetimes. Nassim is a person who hates ties, loves reading though does not read newspapers, and does not watch movies. He strongly believes that the current economic downturn is an example of financial firms manipulating VaR that resulted into asymmetric risk proportions leading to such catastrophic losses.

I am not an expert in financial risk management and won't argue whether VaR is a good or bad indicator of the health of firm's portfolio. I would rather describe a phenomenon as it relates to direct sales process that lacks VaR like indicators leading to poor risk management. Sounds strange, isn't it? But it is not.

Let's take an example of traditional direct sales process of enterprise software company. Due to the unpredictable current market conditions many enterprise software companies have stopped providing revenue guidance. Even during bullish economy the health indicators of sales pipeline, similar to the health of investment portfolio, are more of an art than science. The sales reps have "confidence" in certain opportunities that they are pursuing and there is no model in place to roll up all the subjective indicators and come up with single confidence number that allows the executives to communicate the revenue risk based on the current pipeline. The enterprise software systems are good at keeping track of what sales people are actually doing but they are not designed to model the risk of opportunities based on macroeconomic changes such as customers' aspirations to go green, changes in government subsidies etc. These systems are not even designed to model customer-specific risks that could derail the sales process such as viability of customer's business model, probability of change in customer's annual IT budget, CIO likely to get fired, a possible merger or an acquisition etc. As a whole these systems do not provide any support to roll up the risk to the executives to empower them to intervene, mitigate, and communicate.

It is critical for an organization to stay on top of their sales pipeline to meet and exceed the street's expectations, but it is even more critical to detect the risk early on and course-correct to mitigate and manage the risk. That's what all the stakeholders - executive management, employees, customers, and investors - would like to see in a sales process of a modern organization. There is a lot that the sales pipeline can learn from the financial portfolio risk indicators such as VaR. And yes, there are Black Swans in the IT world too - a dot com burst would certainly qualify being one of those. Sales pipeline needs a robust set of models that are built on subjective sentiments and objective data to represent the risk of loosing a opportunity leading to lost revenue.
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