Insight The Cloud – you already use it, so why doesn’t your business?

The Cloud – you already use it, so why doesn’t your business?

28 MAY 2012 | Posted in business strategy, business value, cloud computing | Author Mike Seery | 1 Comment

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There’s a danger that the overuse and misuse of the word “cloud” can lead to apathy and ultimately put your business at a disadvantage by not harnessing the overwhelming benefits that cloud computing can deliver. This paper highlights how cloud computing is a mature technology, with the launch of Hotmail in 1996 heralding the dawn of an new era in the consumerisation of technology and explains in plain terms what cloud computing is.

Executive Summary

Cloud computing is not new; it is simply a new marketing term. The launch of Hotmail in 1996 heralded the dawn of a new era in the way technology is consumed and became the first widely-used cloud-based service.

Businesses however have been slower to adopt cloud computing because of perceived security and reliability issues, but these concerns are being addressed. Global giants such as GlaxoSmithKline, Spanish bank BBVA and the UK Government are leading the way, but many smaller organisations (including IndigoBlue) are also harnessing the business advantage offered by the Cloud.

The potential benefits are too profound to be ignored and cloud computing will be ubiquitous within the next five years. The case for its use is compelling: it provides the opportunity to flex capacity quickly and easily, it removes technical complexity, and it delivers true 365 x 24 resilient services with transparent, predictable costs and near zero capital investment,

The single biggest obstacle to the adoption of cloud computing is often ignorance and the lack of a strategic view of how it can and should be used. This paper enables the reader to navigate the issues and shows how the adoption of cloud computing will allow organisations to become more efficient, more agile and more productive.

You Already Use It - So Why Doesn’t Your Business?

The term cloud computing derives its name from the depiction of the phone network, or latterly the internet, where technologists’ diagrams represent connected systems by placing a cloud at the centre. Although currently the term is seemingly applied to every new (and old) piece of technology, the cloud when correctly used refers to computing services that are provided as a utility, in a similar way as telephony is for most people.

Although there were other precursors, it was the launch of Hotmail in 1996 that heralded the dawn of the cloud, for the first time providing consumers a functionally rich service without the need for any technical expertise or up-front investment. No servers were needed, no software was installed and no IT professionals were employed. You simply opened a browser and registered for an email address.

Now, 16 years later, it is not just the half a billion people that use cloud-based email every day, the cloud is also used to provide services like Customer Relationship Management (CRM), HR and finance, website hosting and, of course, to store people’s music collection and manage their social lives.

This explosion in cloud computing has been fuelled by the digital revolution and the way in which we are now more connected and able to consume services from wherever we are. It means that very little effort is needed to gain access to a wide variety of services that would previously have required significant expense and expertise. This “consumerisation” of IT means that many people now have access to similar high-quality IT services at home as they do at work. But what does it mean for business?

Too Good to be True?

One provider at the forefront of the cloud is the CRM supplier Salesforce. Common with all leading cloud services it offers a pay-as-you-go model that allows organisations to experiment for a trivial investment, but grow and scale to meet increasing demand. With over 2 million users worldwide, this approach can probably be regarded as a success.

Salesforce’s first advertising campaigns was aimed at non-technical senior executives and featured a prominent “No IT” logo. This logo has now been modified to read “No software”.

The message was clear, although not exactly accurate – no longer is a centralised IT department required to set up and run a CRM system. All that was required was a credit card and a computer. And if you changed your mind, no redundancies or expensive re-organisations were necessary nor were you saddled with a wasted asset – you just cancelled your account. Or if business was booming you simply paid for more users.

That campaign succinctly encompassed many of the advantages of cloud-based services, but it is worth highlighting the potential benefits:

Cost. Little or no capital investment is needed with the model where organisations only pay for what is used, reducing unnecessary or potentially wasted expenditure.

Flexibility. The ability to easily and virtually instantaneously add or remove capacity is inherent with most cloud-based services.

Agility. As demonstrated by Salesforce, cloud-based services require little time to establish, no lead times for hardware delivery. Neither do organisations require their own staff for maintenance and upgrades – they just happen.

Examples include the way that Google introduced the capability of enforcing two-factor authentication to access its services and Salesforce rolled out private social networking-type services for its customers. Both appeared overnight (though with plenty of notice) in a way that was entirely consistent for existing users.

Scalability. In the past, peaks in demand have required the expense of additional capacity, much of which remains unused for most of the time. Cloud-based services provide the opportunity to automatically scale up as demand increases and down again as it drops off.

Comic Relief has used this benefit to its considerable advantage. For the majority of the year they require very little capacity, on one night they require massive computing power. In a traditional model, Comic Relief would require expensive redundant capacity all year but with Carrenza cloud services it is called up on demand.

Resilience. Most, if not all, cloud-based services are available 24 x 365 with no downtime. For all but the biggest organisations the reliability levels are vastly superior to what is possible with a traditional premise-based service. For smaller organisations provision of 24 x 7 support and maintenance would ordinarily require an excessively large IT team.

Security. This is a contentious area but, despite generally over-zealous reporting, the security afforded by cloud-based services typically far exceeds what most organisations are able to achieve with in-house systems.

Green credentials. As the costs associated with power and cooling increase the environmental advantages can often be seen as synonymous with cost benefits. However cloud providers such as Google are increasingly starting to build data centres where fresh air-cooling is possible and where power transmission losses are reduced, meaning less CO2 is produced as a by-product of providing power.

Why Isn’t the Cloud Open for all Businesses?

In 2011, the Small Business Authority, a US-based organisation that provides advice and practical expertise to 100,000 businesses, published a survey of 1,000 members which showed that 48% of small business owners did not believe cloud computing would help reduce their IT costs. It reasoned that small independent business owners needed more help and education to understand the obvious benefits of cloud computing.

A perceived lack of cost justification is just one of the factors that is seen by businesses as hindrances to fully embracing adoption of cloud services. Others include privacy, reliability and security issues, IT department resistance as well as, fundamentally, not knowing where to start.

Adoption of cloud services can often force businesses to deal with difficult issues – while the actual migration process can be relatively straightforward, organisational changes (particularly within the IT department) may be needed to fully realise cost benefit. An understanding of which services or applications can or should be migrated to the cloud is also needed, particularly as many cloud-based services place restrictions on how applications can be customised. And, importantly the way that cloud services are charged for means that organisations may have to re-think how they manage and control spend, with the IT department no longer being the place where the money disappears to.

The Reality of the Cloud

It is perhaps easier to address some of these common concerns by citing examples of organisations that have adopted cloud technologies.

A number of media organisations were early adopters of cloud-based services with The Economist Group using Salesforce CRM from 2005 to manage its £150m global advertising revenues and Telegraph Media Group also using Salesforce as its subscription system for 300,000 customers. Telegraph Media Group, along with Guardian News and Media were also early adopters of Google Apps, with the former deploying email and calendaring services for its 1,000 staff in 2008. Guardian started its deployment with Google Docs for its 2,300 staff in early 2009.

Far larger deployments have since happened, with GlaxoSmithKline rolling out Microsoft’s Online Services (the precursor to MS Office 365) to 100,000 staff in 2009 and BBVA, a Spanish bank, announcing recently that it was to deploy Google Apps to 110,000 staff.

Smaller organisations, too, have used cloud-based services to speed deployment and provide flexibility. Big Society Capital recently selected Octopus HR and GoogleMail, the YHA uses Acquia for its hostel bookings, and IndigoBlue has utilised the cloud for all its services since it was first established in 2002.

Perhaps the least surprising adopters of cloud-based services are your own employees who are almost certainly already using things like Dropbox, Gmail, Skype and iCloud to store your company’s data (files, photos, emails or phone numbers) whether you like it or not.

Harnessing the Cloud

As with all purchase decisions, it is important to be aware of possible drawbacks and to consider options. Moving to the cloud represents a major change and it is therefore essential to understand cloud adoption within the wider organisational context and develop a consistent strategic approach. It is unlikely that a big-bang migration will be desirable or practical.

In developing a cloud strategy it is essential that the following are considered:

Not all clouds are the same. There are often subtle (and not so subtle) differences in cloud offerings, and an awareness of what is important is essential to make an informed choice. Some cloud-providers are also open to negotiation on their standard service terms, with Salesforce agreeing to higher service level agreements (SLAs) in the past, for example.

Configuration vs. customisation. Though not specific to cloud-based services, careful consideration should be given before customisations are made. Customisations may be needed to provide functionality that is essential, but the downside is that subsequent upgrades and support may become more problematic. In the longer run it can often be more cost effective to modify business processes to match the system.

Skills. The skillset needed to implement and manage cloud-based services is not the same as that to manage on-premise dedicated services. Often partners are needed to assist with implementation and a selection process may be sensible.

Three year rule. When considering the cost of cloud-based solutions against traditional deployment models, license, capex and hardware costs are generally equivalent to cloud based solutions when considered over a three to four year period. If you have absolute certainty (and this very rarely exists) around sizing, scale and no need for flexibility, it may be that a non-cloud solution is cheaper.

Charging models. Cloud providers typically charge a fee per month per user for their services. However, incentives are usually offered if you sign up for a longer term and for a minimum number of users. This pricing model is designed to lock customers in, so caution is needed before agreeing to what initially may look like a cheaper deal.

It is worth noting that some traditional software vendors may offer significant discounts for non-profit organisations where equivalent cloud-based vendors do not. For example, Microsoft, offer generous discounts on “shrink-wrapped” software and their cloud equivalents, compared to Google, currently do not offer discounts in the UK although in the US discounted pricing is available.

Accountability and governance. Finally, a legitimate concern that organisations have is the inability to hold cloud-based providers responsible for failures in a meaningful way. Traditional providers can be sued (or employees dismissed!) but this is more difficult with cloud-based providers.

Where Next

Whether your organisation should use cloud services is no longer the question. Rather it is a case of whether it wants to reduce costs and be more agile or not, and when it is most appropriate to start the change.

The opportunity offered by the Cloud is compelling but challenges exist that must be overcome. However, for organisations that approach the migration as part of a clear strategic change the potential benefits are profound.