Economies of Virtualization

As the global economy tanks we have to wonder just how far away we are from seeing signs of a turnaround. Everyone is scrutinizing their personal situation, evaluating job security, debt load, and savings. If we keep in mind that market chaos is an opportunity for massive changes in the business, the net result can be extremely positive.

When I say massive changes, I mean big changes in the entire way business is being conducted today.  Business process virtualization and e-Business provides an entirely new way of conducting business that is much more efficient.  The economies of virtualization can be amazing when executed effectively.  Business process virtualization (BPV) should not be confused with hardware-based virtualization. BPV addresses applications and business processes, functioning at a much higher level in the OSI stack, as well as a more strategic level in the company.

Many companies have already virtualized email. It is still housed at the company's facilities on the company's servers, but it has been web-enabled and is accessible from anywhere with almost any device.  In addition, the email application has been secured and is most likely transmitted via encrypted VPN.

Think of virtualization as web-enablement of a given business application or process.  At the most extreme end, a company could be 100% virtual and reside in the cloud.  This works extremely well for small businesses. We helped a geographically dispersed, physics-centric company that did predominantly Department of Defense work, set up in this manner in 2006.  The owner was in Chicago and was leveraging knowledge developed by graduate students from a number of universities.  A secure site was set up to support the intellectual property development of the company, audio conferencing capabilities were added, email, IM and chat were incorporated.  The students worked from their homes and campus, the owner was typically at a customer site.  All of the cash flow functions including time reporting, accounts receivable and payable, and payroll were set up using an outsourced service.

The net result of this company, it was highly profitable.  (I use pass tense here as the proprietor shut the doors and went to work for the government.) All of the capital investments were in technology.  No capital was invested in real estate.  Eliminating real estate also eliminates all of the other costs associated with a building such as security, lights, heating, cooling, and maintenance. Travel was limited to customer engagements. With audio conferencing and webcams, internal meetings were effective without incurring lost time in travel or travel expenses. Webcams work well for internal meetings, but I would not recommend them for customer meetings.

There were other ways in which this company saved money, but you get the idea of the business model.  Eliminate as many cost centers as possible, concurrently leveraging the web as the company's technology infrastructure. This particular company could have been even more efficient by using thin clients and having the applications on demand, especially those very expensive, technical applications.  With the students in different time zones, fewer application licenses would have been needed as the demand would have been spread out.

 Business process virtualization is definitely one way for a company to reduce costs without having to reduce headcount.  Over the next few weeks I will provide several more examples of firms we helped virtualization, as well as some case studies we conducted.