José María Aznar, Former Prime Minister of Spain - Relaunching Growth in Europe

José María Aznar, Former Prime Minister of Spain
Relaunching Growth in Europe Through Holistic Government Policy, Empowerment, and Leadership

As discussed in my Introduction to the MIT Social Media Club, the unique fusion of research in science, technology, business, and government policy within Cambridge, MA allows the opportunity to discuss many current global challenges with world leaders.

As the European debt crisis threatens to impact the global economy, we received the timely visit of the former Prime Minister of Spain, Don José María Aznar as a speaker for the MIT Sloan School of Management Dean's Innovative Leader program. His discussion touches upon how effective governance European and world leaders must be consider a broad scope of issues in order to be adaptable to change yet maintain a focus on a common core values.

Many of these topics touch upon some of the inter-dependencies explored in my MIT Master Thesis and Blog Post on Latin American sustainable development that involves government policy, economic development, social equality, and environmental protection.

José María Aznar - Former Prime Minister of Spain (1996-2004)

Reflecting upon recent European Union events, Prime Minister Aznar's discussion was focused on an exploration of what are the root causes of the current economic challenges faced by the European Union.

"This crisis is one of the consequences of something deeper and greater. Acknowledging and acting upon the roots of what is causing social distress is what political leadership should now offer to European citizens. (It is not only an) economic crisis, (but also) a political, cultural, and social crisis." - José María Aznar

Prime Minister Aznar suggests that a "broad historical perspective" is required to properly understand the current crisis.

He explained that after World War II, Europe's security, freedom, and prosperity was based on three fundamental "pillars":

1. The North Atlantic Treaty Organization (NATO) as a foundation of European security.
2. Democracy as foundation of European freedom.
3. A shared welfare model emerging from a broad European social consensus.
4. The European Union as the result of the state's support of the establishment of a European free market.

However, he has expressed reservations about some recent EU government institutions policies

"We find those who see the world and act upon he mistaken belief that Freedom, Security and Progress are... perpetually guaranteed, whatever we do. This is not so. It has never been so. the current crisis has bluntly shown that it is not enough (avoid the) wrong (policies). It is necessary to (enact the) right (policies)..." - José María Aznar

The above comment is very insightful. In my thesis research, I have found that government policies tend to minimizes disadvantages by any stakeholders. This moderate approach of simply avoiding incorrect policies often results in policies of half-measures that are not innovative and do not foster substantial change. Not surprisingly, these lackluster approaches fail to properly address the most challenging problems of today's society.

The following statement, while probably very true for a current world leader, is indicative of the lack of holistic thinking by all current stakeholders in our challenges.

"Those of us who think the key issues to reflect on the causes of freedom, security and progress consider that they rely on our acts. They would not exist if societies do not protect them through the establishment of institutions that respond to a certain set of values and ideas. ... On the contrary, those who think that relevant issues to reflect on are the causes of poverty, war and serious conflict do nothing to prevent them and only look for someone to blame when the (symptoms are) all too obvious." - José María Aznar

As the total sustainability framework used in my thesis outlined (see figure below and Detailed Blog Post), poverty, war, and serious conflicts are the expected result from an imbalance among the key relationships needed for a sustainable society. I would agree with Prime Minister Aznar that freedom, security, and progress are key levers towards sustainable development. However, they do not seem to encompassing of the "three pillars of sustainability". It must be noted that a detailed discussion of these specific issues was beyond the scope of a 60 minute discussion.

Ashford "Three Pillars of Sustainability" Framework

"A clash between two opposite views regarding the political, economic, and social world is becoming clearer and clearer every day in European societies. And I believe the true origin of our European crisis lies here. In order to find a solution, a technocratic economic agenda would not suffice. A strong political leadership is also necessary to find a way of pushing for more reformist policies through distrustful societies." - José María Aznar

He views a root cause of current problems to be focused on four "Post-Modernist Illusions" that have arisen in recent decades:

1. Illusion of Progressivism - The view that society will continue to improve automatically
2. Illusion of Social Cohesion - The view that social harmony can be maintained without effort.
3. Illusion of "Do-Goodism" - The view there are no paths to freedom except through government.
4. Illusion of the Eternal Teenager - The view that the government is a source of an endless source of economic rights without exchange in-kind.

The interconnected political and economic nature of the European Union forces a decisive and multilateral approach to the economic crisis. Prime Minister Aznar suggests that economic and political sanctions must be used by the EU as a coercive measure to enforce financial discipline by member nations. However, government actions should not violate the spirit of the pan-European pillars of Security, Freedom, Social Consensus, and the Free Market.

"Old categories to understand the world are no longer useful. In short it is necessary that Europe take as its most serious task to strengthen the three basic pillars upon which Liberty, Prosperity, and Security rest." - José María Aznar

The goal is to seek a way of simultaneously protecting our peace, of acquiring competitiveness to generate employment and real progress in an increasingly demanding global strategy, of renovating and strengthening European welfare models, and finally of taking care of our security in a responsible and predictable way. ... The solution we are seeking is not only for the economy, but for society as a whole." - José María Aznar

A series of questions followed the initial discussion:


Prime Minister Aznar compares and contrasts the achievements during his term in office with Spain's current economic development.



Prime Minister Aznar comments on the consequences of the IMF or other outside economic bodies assisting and regulating EU member states.



Prime Minister Aznar speaks about the challenges for the European Union in increasing its influence in world affairs through solid governance, transparency, and communication with constituents.

MIT SDM Thesis Cliff Notes - The Impact and Potential Role of Multinational Corporations in Achieving Sustainability in Latin American Countries

It was a pleasure to work on this thesis at MIT while in the System Design and Management (SDM) program. I would be interested in opportunities to study other technology, strategy, and policy issues for a corporation, non-governmental organization, or consulting firm. If interested, feel free to e-mail me or contact me through my Linked-In profile.
http://www.linkedin.com/in/charlesatencio

THE IMPACT AND POTENTIAL ROLE OF MULTINATIONAL CORPORATIONS IN ACHIEVING SUSTAINABILITY IN LATIN AMERICAN COUNTRIES

© 2010 Charles V. Atencio

All tables and diagrams in this blog posting are excerpted from my thesis for the purpose of my blog posting and discussion.

The full thesis is available to be read, but not printed, at DSpace, MIT's Public Online Research Repository at http://hdl.handle.net/1721.1/59219 

 “Those who cannot remember the past are condemned to repeat it.” - George Santayana

A technical, business, or government leader must properly understand the components of a complex system before they can construct a proper model (System Dynamics or otherwise) and propose a theory of behavior, leading to suggested policies for change or improvement.

This foundation for future models of system behavior is laid in the linked thesis and associated "cliff notes" summary below. It starts to unravel the complexities of industrial policy and multinational corporate strategy toward sustainable national competitiveness in developing nations within Latin America.

"Latin America has collectively faced a number of crises since the end of World War II. Social and financial inequality, rampant between social groups and between nations throughout the region, has led to a series of destructive self-perpetuating feedback loops of financial and economic collapses, social unrest, military coup dʼétats, and progressive isolation from many of the benefits of a modern, developed, and increasingly globalized world. How can this vicious cycle be slowed and turned around?" (page 11)

"Most assuredly the “nations of the South” continue to face many of the same difficulties that existed 50 years ago. A continued failing exists in the national development of even the most successful nations in the region. Brazil, now a major exporter of steel throughout Latin America as it still struggles with the prevalence of forced labor in their product value chain. Mexico, now a center of manufacturing and trade as a major participatory member of the North American Free Trade Agreement (NAFTA), still faces most of the basic challenges of a developing nation, the ability to support the livelihood and health for all of its workers. Argentina, whose capital, Buenos Aires, was once known as the Paris of Latin America, has been struggling through a series of economic difficulties in the past 15 years that have removed much of the glamor the nation had for some foreign investors." (page 11)

  

Sustainable development should not be left to future generations.

1. Change begins with awareness of the current failings of the current system.
2. This awareness drives the pursuit of knowledge of how to remedy these issues.
3. Once a strategy has been derived, appropriate policies can be developed.
4. Once formulated, effective policies require the conviction of all stakeholders for proper execution.

Multinational Corporations (MNCs), the Automotive Industry, and Latin America

Background

"An intriguing question that this thesis endeavors to investigate is how does the multi national corporation (MNC) affect the sustainable development of a Latin American country. Ever-present entities in most Latin American countries, MNCs are capable transnational organizations in which:"

“Their ability to tap financial, physical, and human resources around the world and to combine them in economically feasible and commercially profitable activities, their capacity to develop new technology and skills, and their productive and managerial ability to translate resources into specific outputs have proven to be outstanding.” (UN Department of Economic and Social Affairs, Multinational Corporations in World Development, 1974)

"While the MNCs offer a wealth of potential resources that may benefit a developing nation, there is often a potential conflict of interest between the MNC business strategy and a nationʼs development needs:"

“The divergence in objectives ... compounded by social and cultural factors, often creates tensions. Multinational corporations, through the variety of options available to them, can encroach at times upon national sovereignty by undermining the ability of nation-states to pursue their national and international objectives. Moreover, there are conflicts of interest regarding participation in decision making and the equitable division of benefits between multinational corporations and host as well as home countries.” (UN Department of Economic and Social Affairs, Multinational Corporations in World Development, 1974)

"Thus the challenge for the developing nation-state in dealing with MNCs is in addressing the delicate balance between their potential to accelerate national development while mitigating the risk that development would be undermined by the MNC corporate strategy. A systemic approach to this challenge must be undertaken whereby:"

“... a practical ... solution is required in which the political entities, differing widely in endowment, whether by accident or design, can cooperate to reconcile their conflicting interests, harmonize their policies for their mutual benefit, and achieve a greater measure of international distributive justice." (UN Department of Economic and Social Affairs, Multinational Corporations in World Development, 1974)

The automotive industry presents an excellent source of multinational corporations that have a long history of activity in the three Latin American counties studied in the thesis: Argentina, Brazil, and Mexico. This industry also presents a unique combination of physical, financial, technological, and organizational assets that could either be managed towards facilitating sustainable national development or derail an economy into dependence.

Automotive MNC production activity in Latin America can be divided into four general periods:

1. 1930s to early 1960s – Import Substitution Industrialization (ISI) - MNCs were incentivized by import tariffs on assembled vehicles to establish domestic automobile assembly plants in various Latin American nations.
2. Late 1960s to early 1980s – Rapid National Industrialization - Latin American nations pursue various policies by which to balance multinational corporation activity and domestic industrialization, leading to an abandonment of the original ISI model of earlier years in favor of an increasingly open market for domestically produced and imported vehicles.
3. 1980s to 1990s – Economic Debt Crisis and Liberalization - The protectionist market of the previous thirty years of ISI production lead to an economic crisis in which the domestic industry is forced to readjust to the international global market.
4. 1990s and 2000s – Regionalization and Globalization - The formation of the North American Free Trade Agreement (NAFTA) and the MERCOSUR South American common market lead to increased MNC interaction with Latin American nations as part of a region, leading to increased benefits and risks to the developing nations under study.

Sustainability Framework

Background and Summary

Professor Nicholas Ashford (MIT Faculty Homepage) developed a framework that starts to describe the complex interrelationships that must be considered in order to properly evaluate sustainable activity in industrial activity.

The components of this framework consider the varied issues that affect industrial development, environmental and resource protection, the nature and quality of employment, and their linkages. A thorough use of such a holistic perspective on sustainable development presents for policymakers the blueprint for a well-considered industrial policy leading to true long-term national competitiveness. For industry and multinational corporations leaders, this perspective presents a foundation to construct corporate strategy and supply chain operations that would not only present a satisfactory ROI, but also satisfy the impending need for true responsible corporate governance.

Nicholas Ashford's "Three Pillars of Sustainability" Framework

The Ashford framework identifies (3) key foci of impacts towards sustainable development:

• Environment - Environmental Protection
• Economy - Economic Development
• Work - Meaningfulness and Rewards of Employment

However, the value of this framework towards understanding the needs of sustainable national development is fully appreciated when the other three components of the framework, II, IV, and VI are examined. They are resultant processes of the relative influence and level of development in its neighboring components:

• Economy and Environmental Linkages
• Economic and Employment Linkages
• Employment and Environment Linkages

Publishing the quantitative data from the thesis is beyond the scope of this blog post. Readers that are interested are welcome to read the actual thesis through the link at the beginning of this blog post.

However, a summary of qualitative rankings of significant automotive industry activities across the six components are included to allow for a better understanding of the diversity of perspectives that must be considered in the development of effective sustainable industrial policy and business strategy.

The 5-point rating system used for the framework is designed to address quantitative rankings, where applicable, and qualitative relationships:

• - -    Substantial harm or potential for harm, or by nature un-sustainable
• -      Some occurrences of harm or a net negative balance of activity
• 0     Neutral. There is either no net effect or the activity is not relevant
• +     Some sustainable occurrences or a net positive balance of activity
• + +  Substantial benefits or potential for benefits to sustainability

Sustainability Framework Component I

Environmental Impacts

Summary
"In most modern states, the primary influencer of the environment is the government or associated non-governmental agencies. The automotive industry is primarily ineffective in making significant impacts to the measures within this component. While some innovative processes carry the promise of addressing some of these weaknesses, they have not yet reached a level of neither maturity nor industry adoption in Latin America to yet be effective system-wide. The record of ineffective government environmental policy and/or enforcement in Latin America has left this sector largely negatively impacted by industry activity." (page 97)

Pollution Reduction

"There have been few efforts made by the automotive manufacturers in the three countries under study to reduce pollution beyond what may be required by national, state, and local regulations. In fact, the pursuits of localities that are more amenable to the automotive factories have been a driving force behind the locations of new factories. For instance, the increasingly stringency of environmental policy governing automotive plants in the region around Mexico City has led to the establishment of new production plants away from major municipalities." (page 56)

"Ford, in all three countries, has made some of the most notable strides in pollution reduction from the installation of water treatment plants in Mexico, to waste composting to aid in rainforest restoration in Brazil." (page 57)

"Revolutionary efforts in Eco-design, while promising to create an automotive-based supporting 'green' economy for reclaiming recyclable materials, will only help to partially mitigate resource depletion in the supply chain." (page 57)

Climate Change Prevention

"The automotive MNCs, besides development projects on hybrid/electric vehicles, are not involved in any projects that address the very long-term issue of climate change. Their logic is very product-focused. They are concentrated on the concept that if the combustion of fuels based on petrochemicals is a cause of climate change, they will design products that use alternate sources of energy." (page 57)

"Minimal thought has been given to the improvement of their actual processes towards the prevention of climate change. The classic business model of maximization of production of new vehicles still remains unaltered, continuing to foster a consumerist society. Continuing with this framework, the additional production that globalization offers the industry combined with ineffective climate protection clauses in trade agreements and the lack of local governance introduces additional possibilities for long- term contributions to climate change." (page 58)

Ecosystem Disruption Prevention

"There is little evidence that automotive MNCs have mitigated disruptions to the natural ecosystems that surround their factories. It must be noted that most Latin American countries have held environmental preservation as a secondary or tertiary priority behind economic and industrial advancement. ISI policies of the 1950s and 1960s reflected the prevailing views of development policy, focused on economic advancement through industrial production and did not address environmental protection." (page 58)

Resource Preservation

"The level of resource depletion due to the automotive industry is closely related to the nature of industrial activity and associated supply chain dynamics. ... early automotive MNC activity in all three nations focused on final assembly of the motor vehicles from prefabricated components shipped from other countries, minimizing the domestic use of raw materials." (page 58)

"The increasing supply chain interdependencies that characterize globalized manufacturing and distribution leave the current automotive industries in Argentina, Brazil, and Mexico at a crossroads. On one hand, the increasing production volume in these countries, combined with the tightly integrated supplier network requires that raw materials be extracted either domestically or through regional trading blocs, accelerate resource depletion. On the other hand, the increasing concern for maximizing vehicle recyclability in the automotive MNC home nations and regions have led some to adopt innovative eco-design policies which consider the total life of their products, from raw material through recycling and re-use in new products." (page 59)

Qualitative Summary of Findings for Sustainability Component I

Sustainability Framework Component II

Economy and Environment Linkages

Summary
"These processes represent how government environmental and trade policy aligns with industrial/economic policy and industry action. ...the four factors constituting this section indicate a strong imbalance towards industrial policy and economic advancement at the expense of environmental preservation. The factors of trade, investment, and regulation have shown some transition towards more environmental friendly strategies, but these changes are isolated and not yet systemic. Industrial development, a more structural, entrenched relationship, still reflects the traditional Latin American policy for over 50 years of a priority given to industrial advancement at the expense of environment." (page 98)

Industrial Development and the Environment

"There have been some efforts to mitigate a number of the effects on the environment from industrial expansion... These actions fail to address the impacts of industrial development throughout the entire automotive industry supply chain." (page 60-61)

Trade and the Environment

"Membership in globalized free trade imposes pressures and presents economic opportunities for a 'race to the bottom', focusing production in nations that do not yet have well-established environmental regulations... While the above activity provides the potential for great harm to the environment, increased international trade does present the opportunity for enhanced technology transfer from the home nations of automotive MNCs." (Page 61)

Economic Investment and the Environment

"...the focus on investments in production has served to increase traditional business models of production, not in finding new, creative ways of using the unique factor endowments of each developing country." (page 62)

"...a minimum level of development in infrastructure and other supporting services is required to permit more advanced investments in knowledge-based activity, which fosters more sustainable activity... However, there is currently a limited need for knowledge workers in the industrial operations of some of these nations. Argentina has limited participation in this venue due to its proximity to Brazil. Mexico also has limited participation due to it proximity to the United States and its continued focus on manpower-intensive operations." (page 62)

Regulation of Health, Safety, and the Environment

"...the 'race to the bottom' phenomenon is also drawn to developing countries due to their lax regulations or enforcement of environmental of environmental policy. Is this the fault of the MNC? Not in the policy sense, for that is the responsibility of government. However, multinationals have the opportunity to implement processes that have been developed in more environmentally stringent business environments. ... In order to properly address these issues, participating countries and trade regimes must implement revisions to environmental policies and enforcement procedures to harmonize requirements and guarantee compliance throughout the supply chain." (page 63)

Qualitative Summary of Findings for Sustainability Component II

Sustainability Framework Component III

Economic Impacts

Summary
"Industry, when aligned with government industrial policy, is the primary influencer of these measures. This is the single component in which the automotive industry has consistently been the greatest benefit to Latin America. While apparently beneficial, this component of the system, due in part to Latin American industrial policyʼs focus on industrial development, has resulted in an imbalance in the overall system." (page 97)

Improvement in Competitiveness and the Use of Capital 

"Automotive MNCs, due to the scope of their global operations and supplier networks, are an excellent conduit for transferring best practices in the effective use of resources towards increasing efficiency, attaining economies of scale in production, and maximizing profit for the enterprise." (page 64)

Economic Changes from Changes in Labor and Capital

"The introduction of domestic automobile manufacturing, guided by the policies of Import Substitution Industrialization...along with membership in regional trade blocs, has fostered in increased use of domestic resources. This can be seen in these countriesʼ share of total Latin American GDP, which ranks the three highest in the region." (page 67-68)

"However, Latin America still represents a very small share of world GDP, leading to the conclusion that even these “giants” in the region are economically small contributors to total domestic development. ... Like much of Latin America, industrialization has been concentrated in a few key regions of each country, which has posed a restriction on economic growth in these nations." (page 68)

Financing of Growth and Development

"...regional governments have been providing subsidies to MNCs to establish operations in their respective states...for the secondary effect that a production move brings to a region – the establishment of a broad automotive supplier network to support the production plant with its associated contribution to employment." (page 69)

"In reality, the automotive industry does not exist throughout Mexico, Argentina, or Brazil. It exists in a small group of highly industrialized MNC/supplier “communities”. They do not directly interact with the overall national region, but only within their industrial clusters." (page 69)

Qualitative Summary of Findings for Sustainability Component III

Sustainability Framework Component IV

Economic and Employment Linkages

Summary
"These processes reflect the balance between economic advancement and processes that indirectly influence the present and future employment opportunities for workers. While reflecting a legacy of being dominated by the interests of industry and industrial policy, there are promising advancements towards a more balanced process that benefits both parties. The adoption of innovative policies that empower workers and facilitate on the job learning shows that the nature of work, while still focused on industry and economics, is starting to benefit the worker more. The fact that these processes of learning are occurring and that Latin America is becoming a greater focus of global automotive production and design is also starting to up-skill workers and shift the international division of labor slightly towards employment, while still primarily benefiting industry." (page 99)  

International Division of Labor

"Automotive MNCs, by their global scope and pursuit of maximized efficiency in value- added operations, have allowed developing countries to better leverage the current developmental state of their domestic workforce." (page 70)

"Reflecting the state of the industry and complementary businesses and technologies, distinct paths in the automotive industry division of labor has been observed:

• MNCs in Mexico continue to focus on leveraging the quantity of available semi- skilled laborers as opposed to the widespread adoption of state-of-the-art technology.
• MNCs view Brazil as a leader in the Latin American industry. They have begun to expand into new highly automated industrial plants in rural areas. While automation has lowered the number of required operators, the remaining employees are trained more holistically using lean methods, focusing on employment involvement in overall processes, rather than individual tasks.
• MNC expansion in Argentina has focused primarily on support of operations in Brazil. While it is still considered a significant contributor to automotive production, it does not have significant continuous investments in new facilities, additional employment, or innovative processes." (page 71-72)

Nature of Work

"In such a globalized automotive industry, only Brazil and Mexico, as Latin American centers of automotive innovation, have shown signs of crossing the divide between simply being a venue for production capacity/efficiency in assembly and a center for creative design and research into new products." (page 72)

Foreign Direct Investment

"FDI dynamics per capita show that while there is much foreign investment in Brazilian industry as an aggregate, it is still relatively insignificant when viewed on how it impact the single average citizen. By contrast, FDI has a much more significant impact on the average Mexican citizen. The future of FDI for the average Argentinean seems mixed and uncertain." (page 77)

Qualitative Summary of Findings for Sustainability Component IV

Sustainability Framework Component V

Employment Impacts

Summary

"This componentʼs primary influencer tends to be nebulous. In some circumstances, with ineffective union representation and government policy, industry has been dominant. In other cases, strong union representation has led to a retrenchment of industry activity and influence. When compared to the factors in Components I and III, the factors associated with employment are relatively transitory. Accordingly, the assessment the automobile of Employment in Latin America are mixed among its nations and measures." (page 97)

Skills

"Traditional Fordist manufacturing had focused on assigning unskilled workers tasks that were focused, repetitive and simple in nature. There was little to no interest in the development of the abilities of the line worker. It could be asked “Is the factory machinery designed to help the worker or is it rather that the worker is to serve the machinery?” (page 79)

"Globalization has helped to 'level the playing field'...result(ing) in increased automation and a reduction of total employment of labor ... (and) import of technology transfer in the form of best practices from throughout the global reach of the MNC to their subsidiaries in all three countries." (page 80)

Wages

"... recent events have confirmed that global market forces introduced locally through participation by automotive MNCs actually leads to the strong potential for a “race to the bottom” in the commoditization of labor." (page 83)

"The relentless pursuit of economies of scale in production, combined with the flexibility of a global supply chain, lowering of trade barriers, and the resulting transitory commoditization of labor present a serious doubt that the industry can present a significant quantity of secure jobs that provide a competitive wage." (page 84)

Purchasing Power

"there seems to be no direct relationship between automotive MNC activity and the overall purchasing power of the citizenry of each nation under study. It appears that Brazil, while heavily focused of economic expansion in many industries, is dysfunctional in having this advancement be reflected in an advancing standard of living for all its citizens. Certainly, the construction of plants in depressed areas helps local citizens by providing some sort of wage, but is it a “living wage”? The unions in Sao Paulo would argue it is not." (page 84)

Job Security

"This tradeoff does not exist in knowledge-based employment, where technology is normally leveraged directly to advance the capabilities of the worker and of the firm. As more possible tasks are developed, additional need for workers is created. Once design operations are established in an industry, in a healthy economy, it tends to be a reinforcing process resulting in increases in employment." (page 82-83)

Worker Health and Safety

"While Mexico does possess health and safety committees, there is little consequence for violation of safety regulations. The key gap in Mexico exists in the proper enforcement of national policy." (page 86)

"By contrast to Mexico, which has health and safety policy that is simply not enforced, Brazil lacks the policies for union representation that would pressure health and safety in industry. Brazilian policy contains significant gaps with regard to guarantee of labor representation, which potentially could prevent effective accountability of an employer towards its workers." (page 86)

Job Satisfaction

"It is true that an increase in automation in a manufacturing facility does tend to reduce a factoryʼs workforce, as claimed by labor union representatives. However, with proper management, the remaining employees in these factories are engaged in the process in a more meaningful way, leading to enhanced job satisfaction." (page 88)

"Autoworkers in the developing world, in an innovative learning environment, are able to not only earn a better wage, but also able to learn new tasks along the manufacturing line. A key step to be able to achieve this goal includes all stakeholders to not become too entrenched in formulaic views and approaches to these challenges. Industry must realize that the should not only address the enhancement of manufacturing productivity, but empower the worker to more fully use their intellect." (page 89)

Number of Jobs

"The adoption of advanced technology, such as what has occurred in Brazil and Argentina, often leads to increased automation that reduces total employment. The remaining employees, exposed to the new technologies and processes, when given the opportunity to learn, are able to gain new skills." (page 82)

Qualitative Summary of Findings for Sustainability Component V

Sustainability Framework Component VI

Employment and Environment Linkages

Summary

"The lack of effective government environmental policy or industrial policy that considers environmental impacts are serious gaps in implementing equitable processes involving employment and the environment. There is minimal progress made on these issues. The only progress made, on environmental footprints from employment, is primarily due to limited efforts to start to effect design, including eco-design processes, which do not have the environmental impacts that exist with factory production." (page 98-99)

Environmental Footprint Reduction from Employment

"From the perspective of the automotive industry, the only cases of intentional linking of a reduction of environmental footprint and employment is the development in Brazil of alternative fuels, such as ethanol, for use by automobiles and the integration of eco-design in the automotive design process." (page 91)

"A challenge is presented to the balance of industry and agriculture in the expansion of the auto sector from the traditional industrial cities of these nations into rural areas, locations that have previously seen only agricultural development. These new plants, while providing a source of revenue for an economically depressed population, carries the possibility of a toxic environmental footprint if unmanaged by corporate governance, union activity, or enforcement of comprehensive government policy." (page 91-92)

Effect of Environmental Policies on Employment

"There are minor scattered creations of knowledge-focused jobs that are focused on creating and managing eco-designs for recyclability or in the design of alternative fuel vehicles in Brazil and Mexico. However, these positions are not significant in comparison to the quantity of labor engaged in factory production.

In fact, it has been observed in Mexico that the addition of increasingly stringent pollution control policies has not led to the improvement of existing plants, but to either the consolidation of old plants into a more efficient plant, or the relocation of plants to areas that have higher levels of permitted pollution." (page 92)

Qualitative Summary of Findings for Sustainability Component VI

Multinational Automotive Company Systainable Activity in Latin America

General Summary and Recommendations

Recommentations:

Recommendation 1 – Promote Holistic Policies in Government Ministries

"A logical first step in any attempt to gain desirable benefits from a complex system such as the automotive industry is a thorough understanding of the broad system impacts of any policy decision. Starting with this perspective, an attempt can be made to address effective recommendations. ... The application of systems engineering principles requires that all potential stakeholder perspectives be considered when developing national and regional policy. ...the Minister of Development, Industry and Trade would need to closely consult with other ministries, such as the Ministers of Labor, Environment, Science and Technology, Agrarian Development, and National Integration, among others, in order to formulate comprehensive policies to address these complex issues." (page 102)

Recommendation 2 – Establish National Environmental Accounting System

"A developing nation must make the most sustainable use of its existing factor endowments in order to foster development of new, complementary factor endowments. If the developing nation has a surplus of agriculture, this surplus can be traded in a number of ways with developed nations. Capital from trade could be used for development of social and industrial infrastructure, such as agricultural colleges, roads and irrigation, permitting national competitiveness or technological products, such as agricultural machinery, that directly foster enhanced use of factor endowments. ... A consistent weakness across most nations is the lack of a policy mechanism to properly account for the quantity and types of national resources that exist in their ecosystem. Without this accounting, it is impractical to assess the current state of environmental resources and understand the level of its “stocks and flows” and how they dynamically change based on trade and industrial policy." (page 102-103)

Models of this innovative form of accounting are now being used by the government of Costa Rica, described by the United Nations Statistical Environmental and Economic Accounting (SEEA) standard, and outlined by the Rio Declaration on Environment and Development.

Recommendation 3 – Enforce Uniform Environmental Representation & Requirements

"Multinational corporations, due to their global presence, have an ability to transfer capital investments as required to best take advantage of trade agreements, economic incentives, or market opportunities. All too often current treaties that were signed in the spirit of equitable benefits for all signatory parties fail to meet truly sustainable objectives. ... a lack of comprehensive representation of all stakeholders in the preparation and enforcement of the treaty has led to enacted treaties that are de facto neither comprehensive nor executable as initially intended." (page 105)

"A regional authority should be established in each developing geographic region as appropriate to strengthen the bonds among member nations, leverage and share their individual factor endowments, and serve as a collective intermediary with other nations and organizations in the world stage. ...True comprehensive treaties that address sustainability must be developed with representatives of not only signatory governments, but of labor organizations, environmental non-governmental organizations (NGOs), and industrial and scientific groups. ...there should be equal representation from both the developed and developing world. Like the regional committees, the global international committees shall have the autonomy to act independent of any national influence." (page 106-107)

Recommendation 4 – Foster Development of Technology Transfer

"Neo-classical economic theory promotes the continuous expansion of markets, encompassing increasing use of raw materials to support increasing production and inevitably generating an increasing amount of waste. ...it is not a feasible operating practice in todayʼs globalized markets where billions of individuals are engaged in this unsustainable loop either as individuals or through their businesses." (page 107)

"Herman Daly suggests a conceptual solution to this dilemma in his description of Steady State Economics (SSE). In this process, global development is able to occur without growth, focusing on many of the non-monetary measures of progress, such as knowledge and technology. While simplistic in concept, Daly does present an important perspective in formulating and enacting policy that not development is economic growth." (page 108)

"The MNC is a unique and useful conduit to effectively transfer technology, capital, and labor skills from the developed to the developing world. Its intercontinental reach allows the additional transfer of best practices from one part of the world to another. The MNCs drive for profit and market share, if channeled properly, can serve as an effective driver for sustainability." (page 108)

Recommendation 5 – Establish Incentives to Foster Growth of Eco-Activities 

"A grave environmental and ecological danger lies in the callous disregard of the impact of the developed worldʼs consumerist activities and the linear manner by which industry fulfills its needs. The pattern of behavior has traditionally been the harvesting of raw materials, followed by production of products, followed by sales of product to the consumer, and finally ending with disposal of the product by the consumer as waste." (page 108)

"Future policies must consider the entire ecosystem and innovative long term uses of products in order to maximize either the recycling of products or its productive lifespan to consumers. A means to maximize identified recycling/reuse opportunities and identify the most ecologically conscious means of product design and production is to foster trans-disciplinary education in universities. Society would gain great benefits when the chemical engineer and other technical individuals learn about the ecological and societal impacts of their work. Likewise, ecological protection campaigns would be much more effective and relevant if the social worker or policy analyst were to better understand the research, product development and manufacturing process." (page 109)

These solutions for sustainable development should not be left to future generations.

1. Change begins with awareness of the current failings of the current system.
2. This awareness drives the pursuit of knowledge of how to remedy these issues.
3. Once a strategy has been derived, appropriate policies can be developed.
4. Once formulated, effective policies require the conviction of all stakeholders for proper execution.

Cloud Computing Expo 2010 - West - Day 1

7th international Cloud Computing Conference / Expo 2010 - West

and

10th International Virtualization Conference and Expo

1 November 2010
Silicon Valley - Santa Clara, CA

During the first day we will have speakers from:
Oracle, VMware, Zetta, Contendo, Unisys, Amazon, Robust Cloud, RightScale, Nimsoft, CA Technologies, Slalom Consulting, IBM, Impetus, SAP, HyperStratus, Mellanox Technologies, HubSpan, Abiquo, Red Hat, CSC, Quest, LogLogic, CodeFutures, Cordys, Servoy, Adaptive Computing, NEC

And that is only the first day!

8 Tracks to address the needs of the wide variety of stakeholders in the cloud computing business landscape:
Track 1 - Enterprise-Level Cloud Computing& Virtualization
Track 2 - Cloud Security, Storage& Management
Track 3 - Performance& Testing
Track 4 - Real-World Cloud Computing& Virtualization
Track 5 - Hot Topics
Track 6 - Day 1 - SOA in the Cloud and Cloud Solutions
Track 7 - Architecture, Standards& Compliance
Track 8 - Hot Topics 2

Finally, we have an Expo Floor with over 80 exhibitors

Cloud Computing - Part 4 - Business Ecosystems and Value Capture

http://cloudcomputingexpo.com

I will be attending the 7th International Cloud Computing Expo at Santa Clara, CA next week.
My blog will have some posts reflecting the experiences in this convention.

This is part four of a series of posts before the conference that will serve as a good basic introduction to the benefits, challenges, and risks associated with Cloud Computing technologies and business strategies.

I have been a lead user and user-innovator of computer technology for about 20 years. My MIT SDM education has provided me with powerful frameworks by which I can better study the strengths and weaknesses of technologies and their interaction in the greater business landscape.

A core part of the SDM program involved the study of technology dvelopment/deployment and business strategy. The next four foundation-level posts are directly based upon a series of four papers that I prepared as part in course 15.965 - Technology Strategy for SDM, during Spring 2009 [1]. These papers focused on a study of the different technological and business opportunities associated with Cloud Computing.

Please note that these blog posts aim to bring the discussion to a level that is more understandable to the general technology-saavy public. A thorough examination of the technology and strategy associated with Cloud Computing technologies would easily qualify for a doctorate thesis.

The Cloud Computing Ecosystem Key Groups

Most modern technological products and services exist in a complex business ecosystem framework that extends far beyond the traditional scope of manufacturer and consumer. The business ecosystem framework for cloud computing consists of several key groups:

• End Users - Most end users of cloud computing services, as discussed in the first and second papers of this series[1][2], must see improvement in key values in which Cloud Computing will be measured. Otherwise, there will be no incentive to adapt the technology. Any loss aversion from traditional alternatives must be avoided or made irrelevant when compared to the new technology.

• Network Administrators - Depending on the particular adoption policy of a corporation, Cloud Computing may not extend throughout a corporation’s computer network and only reach the data center / server level. In this case, the actual network administrators are considered the actual end-users and have focused needs and concerns that must be addressed by a Cloud Computing provider before being adopted.

• Computer Hardware Manufacturers (OEMs) - These companies offer workstation and/or server equipment to their clients, including individual corporations, separate data centers, and cloud computing data centers. Existing and future partnerships will dictate what opportunities in these disparate areas of the ecosystem can be successfully leveraged to maximize market share and survivability.

• Internet Service Providers (ISPs) - While not directly associated with the technology of Cloud Computing, ISPs provide the means by which the end users or network administrators are able to access the services associated with Cloud Computing.

• Cloud Computing Platform Providers - Depending on a particular Cloud Computing Architecture, there may be a top-level interface that an end user accesses lower level applications and services in a Cloud Computing framework. Alternatively, if the framework is modular and based on à la carte offerings, this top-level interface may only be a standardized graphical user interface among each option.

• Cloud Computing Applications and Services - These are the actual components that make up each cloud computing framework. The key objectives assigned to each component, especially for à la carte frameworks, help to distinguish the target business sectors of the framework. The most integrated architectures will blur the distinctions among services and offer a seemingly all-encompassing package to the end user.

• Business Partners - In order for a framework to dominate parts of a business ecosystem, partnerships must be formed among companies and organizations. These partnerships, which most often are vertically formed through an architecture, allow a synergistic relationship, leveraging the specialties of differing organizations into a common framework or product.

• Business Complementors - As described by David Yoffie and Mary Kwak in the September 2006 Harvard Business Review article “With Friends Like These”, and adapted into Figure below, the management of complementors, businesses that separately supply services to the same customers are a key component to business ecosystem strategy. These businesses often have the opportunity to leverage off of each other’s ecosystem position and strategy to further their own interests. Complementor arrangements can be fleeting since the parties often have misaligned interests due to their differing positions in the ecosystem. A mutually beneficial ecosystem can quickly change into a conflicting arrangement.

• Non-Business Organizations - Organizations that are not focused on business partnerships can provide a strong influence in the formation of some business frameworks in the Cloud Computing ecosystem. These relationships are often seen in open-source communities, which foster a collaborative form of product development. Academic institutions, which often give greater value to the sharing of knowledge epitomized by scientific research, are often involved with these organizational relationships.

• Two-Sided Market Complements - Separate from the business partners described above, some Cloud Computing frameworks are structured for a two-sided market. As a result, the adoption of a framework by one side of a market is directly related to the existence of adopters on the other side of the market. The Cloud Computing platform provider serves as the intermediary between these two sides. Caution must be exercised by the platform provider to balance both sides of the relationship to maintain increasing returns to scale.

  Complementor Management Strategies; Adapted from [3]

 

An INTRODUCTION to the Cloud Computing Ecosystem

 Since most cloud computing applications are in the very early stages of adoption, there is not a wide variety of history in the technology. Previous business strategies involved focused efforts in remote storage, media access, or common services such as webmail. However, as Cloud Computing as a unique business model has matured and attracted the attention of major corporation, major architectures, both modular and integrated, have been developed to incorporate this technology.

As can be seen in Exhibits 1 and 2 below, there are six major Cloud Computing service architectures that are competing for dominance. Each architecture is fundamentally different from one another, reflecting not only the types of clients it is targeted to serve, but also the technical background and business philosophy of its developers.

• Amazon.com – Amazon Web Services - Amazon’s modular cloud computing solution is focused on specific services that have been designed for businesses and is considered a specialist in this segment of the ecosystem. Other than the coordination among services, there is no focused platform. The architecture is designed to serve B2B two-sided markets with the seller paying Amazon for services. Due to the focused, yet comprehensive offering in these services, complementors are not very important. However, IBM Blue Cloud is a potential future rival in these services. Microsoft Azure, with an integrated platform, will offer a long-term threat. 

• Yahoo! – Commerce and Small Business Services - Yahoo, who offers home-user focused web applications such as e-mail or job searching, has begun to offer limited services to small businesses. While they were a leader in the use of the internet in the late 1990s among home-users, they are being eclipsed by Google.

• Hewlett Packard (HP) / Intel / Yahoo! – Cloud Computing Research Initiative - Uniquely, these companies have formed a partnership with HP and Intel called the Cloud Computing Initiative that is focused on sharing storage and computing capacity among academic institutions. Many applications and services have been developed with assistance from the open source community. Complements are critical for this project to survive in the long term.

• Google – Google Apps and Google App Engine - Google Apps has focused on time management and communication applications that leverage the architecture that Cloud Computing can offer. Google App Engine provides a programming interface that facilitates the programming of webapps. Since Google is not a major software developer, it will require a constant variety of complementors to maintain dominance in the long run. Microsoft Azure, an integrated platform, will have build-in complementors that will directly threaten Google’s position in all ecosystems, but primarily in the business sector.

• International Business Machines (IBM) – Blue Cloud - IBM’s modular framework, developed from the continuing development of their Tivoli division, aims specifically at the server market. They aim to leverage their relationships in the server market and specialize in offering an alternative to local Data Centers. Accordingly, their services are structured towards the needs of a network administrator.

• Microsoft – Windows Azure - The industry is awaiting Microsoft’s entry into the Cloud Computing “arena” with Windows Azure. It will be an architectural innovation since it will be the first major integrated operating system designed to work primarily with cloud computing resources. As a result, Azure has the opportunity to be both a vertical integrator as an application interface and a horizontal frontend platform for end-users. Microsoft will need to leverage their existing user base and their application developer partners to assure that the combination of a two sided market (application developer / application user) and complementors are sufficient to gain dominance in the ecosystem. However, Microsoft is in the strong position that it could use its vast financial resources to form additional partnerships and wait for adoption of Azure in the ecosystem.

Major Cloud Computing Service Architectures

Cloud Computing Ecosystem (Select Services)

The computer ecosystem is at the edge of a radical change in architecture due to the maturing of Cloud Computing. Initially, Cloud Computing was the venue of many varied services that offered limited offerings. Gradually, major leaders have come to dominate some types of services such as Google for personal productivity and organization and Amazon for B2B Services.

However, IBM Blue Cloud and Microsoft Windows Azure herald a radical change in the architecture of the ecosystem in which the focus of the computing hardware and software is no longer located with the user, but at a central hub “in the cloud”.

This could raise the importance of the telecommunications industry to an even higher level of importance than during the “dot com boom” of the 1990s. These companies will not just be the “gatekeepers” of access to the rest of the world as in the past, but also to our own hardware and software. Essentially, the telecommunication companies are the ultimate compementors of the Cloud Computing industry. If the infrastructure is unable to handle the additional communicative load, it will form a bottleneck that will prevent large scale adoption of cloud computing.

The discussion of Cloud Computing will take a deeper dive into the issues that affect IT operations and business strategy in the next part of this series:

Cloud Computing - Part 5 - A Disruptive Technology?

Refernces:

[1]    Atencio, Charles, “Demand Opportunity of Cloud Computing with Personal Computers”, 15.965 - Technology and Strategy (Massachusetts Institute of Technology, Spring 2009)
[2]    Atencio, Charles, “Technological Innovation of Cloud Computing with Personal Computers”, 15.965 - Technology and Strategy (Massachusetts Institute of Technology, Spring 2009)
[3]    Yoffie, David, and Kwak, Martin, “With Friends Like These – The Art of Managing Complementors”, Harvard Business Review.

Cloud Computing - Part 3 - Life Cycles and Transitions

http://cloudcomputingexpo.com/

I will be attending the 7th International Cloud Computing Expo at Santa Clara, CA next week.
My blog will have some posts reflecting the experiences in this convention.

This is part three of a series of posts before the conference that will serve as a good basic introduction to the benefits, challenges, and risks associated with Cloud Computing technologies and business strategies.

I have been a lead user and user-innovator of computer technology for about 20 years. My MIT SDM education has provided me with powerful frameworks by which I can better study the strengths and weaknesses of technologies and their interaction in the greater business landscape.

A core part of the SDM program involved the study of technology dvelopment/deployment and business strategy. The next four foundation-level posts are directly based upon a series of four papers that I prepared as part in course 15.965 - Technology Strategy for SDM, during Spring 2009 [1]. These papers focused on a study of the different technological and business opportunities associated with Cloud Computing.

Please note that these blog posts aim to bring the discussion to a level that is more understandable to the general technology-saavy public. A thorough examination of the technology and strategy associated with Cloud Computing technologies would easily qualify for a doctorate thesis.

A Brief Introduction to Technology Evolution of the Cloud Computing "Concept"

The research into the technological concepts behind Cloud Computing could be traced back to the development of the first computer networking infrastructure, the Advanced Research Projects Agency Network (ARPAnet), in 1962. Charles Herzfeld, ARPAnet Director from 1965 to 1967 described the project intentions:

“The ARPAnet was not started to create a Command and Control System... Rather, the ARPAnet came out of our frustration that there were only a limited number of large, powerful research computers in the country, and that many research investigators who should have access to them were geographically separated from them.” [3]

ARPAnet Geographic Map - 1969

ARPAnet Geographic Map - 1971

ARPAnet Geographic Map - 1980

Research, development, and diffusion of prerequisite technologies to Cloud Computing followed: Ethernet standards in the 1970s, TCP/IP protocols in the 1980s, and the advent of widespread high-speed internet access during the 1990s and early 2000s.

Application of the Evolutionary Life-Cycle Framework to Cloud Computing Development

Fernando Suarez, Associate Professor of Management at Boston University, has identified five key phases in the evolutionary life-cycle of a technology [2] as shown in Figure below. Each phase is bounded by seminal events in the technology’s development and adoption in a market. While these events have been standardized by Professor Suarez, they are unique to the particular circumstances in the development and diffusion of each technology.

The Key Phases in Technological Evolution [2]

Using Professor Suarez’s framework, a brief description of the phases, seminal events, and how they relate to Cloud Computing follow:

Phase 1 – Research and Development:
This phase, initialed at the very beginning of technological development (To), includes the initial research into a technology before a working prototype (TP) is developed. While computer clustering has been used with supercomputers for many years, To for the current incarnation of cloud computing can be traced back to the early 1990s when Ian Foster, Carl Kresselman, and Steve Tuecke began research into a modern form of distributed computing for science and engineering called “The Grid” [4] [5]. Analogous to the electric utility grid, this technology would allow a user to use metered computing resources.

Early research was focused within academic institutions. The innovation trajectory at this stage concentrated on the coordination of resource sharing among different computers, leading to the establishment of Virtual Organizations (VOs), a new type of architecture that supported problem solving based on computer collaboration. Key metrics of success, embodied in the first working prototypes, included acceptable data transfer rates among network nodes, reliability in the transfer of data, and the ability to dynamically integrate output from computer collaboration onto a central server.

Phase 2 – Technical Feasibility:
Initiated by the development of the first prototype (TP), this phase focuses on refinement of the technology until the first release of a commercial product (TL). The prototypes of the shared computational aspects of Cloud Computing, then called Grid Computing, were focused in academic volunteer research projects.

The first of these was the Great Internet Mersenne Prime Search, started in January 1996, focused on finding Mersenne numbers, positive integers that are one less than a power of two, which are also prime numbers. [6]

This free project, and others like it, such as SETI@home in 1999, proved that the use of centralized servers interacting with personal computers over high-speed internet connections was a feasible technology to pursue commercially.





Phase 3 – Creation of a Market for the Technology:
Initiated by the release of the first commercial product (TL), this phase focuses on alignment of the technology to the needs of potential customer segments, ending when an early front runner in the technology appears in the market (TF). The need for centralization and standardization in an increasingly digital globally networked world is self-evident at different levels to many consumers. However, the radical architectural innovation presented by cloud computing compared with existing technologies has slowed market adoption of many innovations associated with this new technology.

In order to effectively address different customer segments, Cloud Computing has fragmented into various types of products and services with different development trajectories.

• Online File Storage - The remote on-line file storage service, first pioneered during the “dot com boom” of the late 1990s, is currently inferior to internal hard disk drives and local network servers in speed. However, it has the ability to offer virtually unlimited storage capacity to its clients. In addition to free storage services that are typically limited to a few gigabytes, these service providers have been offering low monthly rates ($5 to $10) per month for unlimited backup capacity. These rates allow remote storage to be an economical alternative to local storage of archival files.

• Social Networking - While preceded by an early dial-up modem service called “The Well” in 1985, the mid 1990s saw the dawn of the World Wide Web based social networking sites, such as Geocities in 1994, Classmates.com in 1995, Linked-in in 2003, and Facebook in 2004. These services are leveraging the advantages of multiple users contributing to a centralized database. Users, after contributing some basic information about themselves to the database, are able to exploit the connections this centralized database provides. Most sites offer limited services for free in order to easily build up a database, but require monthly payments for premium services ($24.95 - $499.95 per month in linked-in depending on level of access)

• Software as a Service (SAAS) - One of the first outlines of Software as a Service (SAAS) applications was made in the paper “Service- Based Software: The Future for Flexible Software”. [8] In this paper, the authors mention that there were three key models for SAAS in 2000:
• A Rental Model in which the software distributor leases the software license to the user. Distributors must focus on maintaining additional content or beneficial upgrades for the user in order to maintain the contract. An example of the rental model can be seen in anti-virus software, which need continuous virus definition updates
   
• A Server Model offers software from a central server on a pay-per-use basis. The software is not downloaded to a local machine.

• A Service Package Model has components that enhance the base software package to use the networking capabilities of the internet. Many applications, have “value-added features” that require internet access to various central servers.

• Productivity Suites - An increased need for web based productivity tools became evident as personal and business consumers became increasingly dependent on the internet for collaboration and communication in the mid 2000s. Hotmail in 1996 was the first webmail service and was promptly sold to Microsoft a year later. Google Gmail, a competing webmail client, was released in 2004. Google later chose to leverage the advantages of the centralized servers of Cloud Computing and offered a now dominant package of interlinked software. Google offered Google Talk for voice over internet protocol (VOIP) in 2005, and Google Calendar for scheduling and Google Docs for word processing, spreadsheets, and presentations in 2006.

• Total Solution Software, Storage, and Inter-connectivity as a Service - A new paradigm of the personal computer may emerge. All the above market solutions assume that the user’s machine would be the focus of the processing of data. Microsoft has passed on making a first-move in many of these markets. In one of the most ambitious projects to leverage Cloud Computing, Microsoft is planning to offer a new Cloud Computing based operating system, Microsoft Windows Azure, that not only offers many of the services listed above, but also allows computational tasks to be assigned to centralized servers, turning the home computer into an advanced terminal.

• Editor's Note - Since the writing of this analysis in early 2009, it has become obvious how several of the above Cloud Computing services have become strong synergistic complementors of mobile technologies, including smartphones, e-readers, and the new paradigm in tablet-based technology, pioneered by the Apple iPad. The continued widespread adoption of this hardware, enabled by mobile storage and software, will help to drive Cloud service expansion and vice versa.

Phase 4 – The Decisive Battle for Dominance
Once an early front runner in the technology field appears on the market (TF), a battle for dominance in the technology begins. This battle ends when a dominant technology emerges (TD). Latecomers often will have difficulty in gaining market share unless they expand to new markets, or offer a disruptive version of the technology and change the market dynamics.

While the online file storage, individual software as a service, and social networking have developed in parallel to dominant architectures as described in detail above, the key battle for dominance of the Cloud Computing architecture lies in two issues:

• Will the dominant architecture of Cloud Computing involve separately sourced services as is most often seen today, or a packaged group of interconnected applications used as complementary assets as can be seen in Google Apps and will be seen in Microsoft Windows Azure?

• If the future Cloud Computing dominant architecture will be an integrated set of applications in a suite, what will be the role of the personal computer? Will the Cloud serve as a source of centralized storage, data, and base applications with the personal computer or mobile device as the focus of activity as Google Apps proposes? Alternatively, will there be a new type of operating system, as proposed by Microsoft Windows Azure, which starts to leverage distributed computing and shifts the focus of the processing into the Cloud?

Phase 5 – Post Dominance Battles:
Proceeding from the establishment of clear technology architecture (TD), post dominance battles focus on technology development within the dominant architecture. Major participants typically have a license to core components of the architecture or have already amassed a significant market share or complementary assets supporting the technology. Online storage and social networking have developed standardized architectures for the present time and are evolving in parallel to meet different social and business needs. However, software as a service and application suites are still under heavy contention for dominance based on the two key issues described in Phase 4.

Key Player Cloud Computing Adoption and Responses to Technological Innovation

The table below indicates how the key distributors and consumers have responded to different technological innovations in Cloud Computing. As of 2009, there appears to be two overall architectures that are competing for long-term dominance of Cloud Computing technology – separate specialized services or highly integrated packages:

Specialized Services (à la carte)

• IBM’s “Blue Cloud” business hardware/software solution packages targeting IT groups.
• Amazon.com packages addressing a broad spectrum of services for both end-users and service providers.
• Google Apps (as isolated applications).
• Miscellaneous Software and Service Providers who offer limited services (not shown).

Integrated Services

• Google Apps (as an integrated suite of applications – a “Cloud Computing Office”).
• Microsoft Windows Azure – Cloud Computing based operating system offering storage, SAAS, and distributed computing solutions in an integrated package.

Government legislation may affect the outcome of this battle if it prohibits the all-encompassing consolidation of data and services under one package as presented by Windows Azure. Whatever the result, the architecture that becomes dominant will force services using competing architectures to redefine their services, find a niche, or leave the market.

The discussion of Cloud Computing will be refined/expanded upon in the next part of this series:

Cloud Computing - Part 4 - Business Ecosystems and Value Capture

References:
[1]    Atencio, Charles, “Demand Opportunity of Cloud Computing with Personal Computers”, 15.965 - Technology and Strategy (Massachusetts Institute of Technology, Spring 2009)
[2]    Suarez, Fernando, “Battles for Technological Dominance: An Integrative Framework”, in Research Policy 33, Pages 271-286
[3]    “Charles Herzfeld on ARPAnet and Computers”, About.com:Inventors,
http://inventors.about.com/library/inventors/bl_Charles_Herzfeld.htm
[4]    Foster, Ian, et al, “The Anatomy of the Grid”, Intl J. Supercomputer Applications, 2001,
http://www.globus.org/alliance/publications/papers/anatomy.pdf
[5]    Wallis, Paul, “A Brief History of Cloud Computing: Is the Cloud There Yet?”, August 22, 2008, Cloud Computing Journal, http://cloudcomputing.sys-con.com/node/581838
[6]    Great Internet Mersenne Prime Search – GIMPS,
http://www.mersenne.org/
[7]    Atencio, Charles, “Technological Innovation of Cloud Computing with Personal Computers”, 15.965 - Technology and Strategy (Massachusetts Institute of Technology, Spring 2009)
[8]    Bennett, Keith, et al, “Service-Based Software: The Future for Flexible Software”, 2000,
http://www.bds.ie/Pdf/ServiceOriented1.pdf